Benjamin Graham's Intrinsic Value Formula: The Only Stock Valuation Method You Need

What if I told you there's a single formula that can tell you whether a stock is overpriced, fairly priced, or a screaming bargain?

Not a gut feeling. Not a hot tip from Reddit. An actual mathematical formula — created by the man who literally invented value investing.

His name was Benjamin Graham. He was Warren Buffett's professor, mentor, and the reason Buffett became the most successful investor in history. And his intrinsic value formula is still one of the most powerful tools any investor can use today.

Let's break it down — step by step, with real examples.

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Who Was Benjamin Graham?

Benjamin Graham (1894-1976) is universally known as the "Father of Value Investing." He was a professor at Columbia Business School, a successful fund manager, and the author of two foundational books:

• Security Analysis (1934) — the bible of fundamental analysis
• The Intelligent Investor (1949) — which Warren Buffett has called "the best book on investing ever written"

Graham's entire philosophy boils down to one idea: every stock has an intrinsic value — what the business is actually worth — and the market price often deviates from that value. Your job as an investor is to buy when the price is below intrinsic value and sell (or avoid) when it's above.

Simple in theory. The formula makes it simple in practice.

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The Graham Intrinsic Value Formula

Here it is:

V = EPS x (8.5 + 2g) x 4.4 / Y

Where:

Variable	Meaning
V	Intrinsic value per share
EPS	Earnings per share (trailing twelve months)
8.5	The P/E ratio Graham assigned to a company with zero growth
g	Expected annual earnings growth rate (%) over the next 7-10 years
4.4	The average yield of AAA corporate bonds when Graham developed the formula (in 1962)
Y	The current yield of AAA corporate bonds

That's it. Five inputs. One answer.

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Breaking Down Each Variable

EPS — Earnings Per Share

This is the company's net income divided by its total outstanding shares. It tells you how much profit each share of stock generates.

Where to find it: Any financial website (Yahoo Finance, Google Finance, Morningstar). Use the trailing twelve months (TTM) number.

The 8.5 Base P/E

Graham believed that a company with zero earnings growth should trade at a price-to-earnings ratio of 8.5. This is the baseline. Every percentage point of expected growth adds to this multiplier.

Think of it this way: a company that's not growing at all is like a savings account — it's worth something, but not a premium. The 8.5 P/E is Graham's way of saying "here's the baseline value of a stagnant but profitable business."

g — Growth Rate

This is your estimate of the company's annual earnings growth over the next 7-10 years. This is the trickiest variable because it requires judgment. Tips:

• Look at the company's historical EPS growth over the past 5-10 years
• Check analyst consensus estimates for forward growth
• Be conservative — Graham would want you to err on the side of caution
• A growth rate of 7-15% is reasonable for most established companies
• Never use more than 15% — even for fast growers — to maintain a margin of safety

4.4 / Y — The Bond Yield Adjustment

This is Graham's genius addition. It adjusts the valuation for interest rate environments.

When he created the formula in 1962, AAA corporate bonds yielded 4.4%. The ratio 4.4 / Y adjusts the valuation up or down based on current bond yields.

• If bonds yield more than 4.4%, stocks become worth less (bonds are more competitive)
• If bonds yield less than 4.4%, stocks become worth more (bonds are less attractive)

As of early 2026, Moody's AAA corporate bond yields are approximately 4.8-5.0%. We'll use 4.9% in our examples — which means the adjustment factor is 4.4/4.9 = 0.898.

In other words: in today's higher-rate environment, stocks are worth slightly less than they'd be if rates were at the 4.4% historical average. This is the formula's way of keeping you honest.

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Real Example #1: Chevron (CVX)

Let's value Chevron, the energy giant, using Graham's formula.

Data as of March 3, 2026:

• Current stock price: $188.70
• EPS (TTM): ~$11.50
• Estimated growth rate: 5% (conservative for a mature energy company)
• Current AAA bond yield (Y): 4.9%

Calculation:

V = EPS x (8.5 + 2g) x 4.4 / Y V = $11.50 x (8.5 + 2 x 5) x 4.4 / 4.9 V = $11.50 x (8.5 + 10) x 0.898 V = $11.50 x 18.5 x 0.898 V = $11.50 x 16.61 V = $191.05

Graham's intrinsic value: ~$191 Current market price: $188.70

Verdict: Chevron is trading almost exactly at its intrinsic value. It's fairly valued — not a screaming buy, but not overpriced either. Combined with its 3.64% dividend yield and 39 consecutive years of dividend increases, it's a reasonable hold for income investors.

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Real Example #2: Pfizer (PFE)

Now let's look at a stock that's more interesting from a value perspective.

Data as of March 3, 2026:

• Current stock price: $26.59
• EPS (TTM): ~$1.45
• Estimated growth rate: 8% (recovering pipeline, oncology growth from Seagen acquisition)
• Current AAA bond yield (Y): 4.9%

Calculation:

V = $1.45 x (8.5 + 2 x 8) x 4.4 / 4.9 V = $1.45 x (8.5 + 16) x 0.898 V = $1.45 x 24.5 x 0.898 V = $1.45 x 22.00 V = $31.90

Graham's intrinsic value: ~$31.90 Current market price: $26.59

Verdict: Pfizer appears to be trading about 17% below its Graham intrinsic value. That's a meaningful discount. With a 6.31% dividend yield on top of that, this is the kind of stock Graham himself would have examined closely.

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Real Example #3: PepsiCo (PEP)

Let's try a consumer staples giant.

Data as of March 3, 2026:

• Current stock price: $164.91
• EPS (TTM): ~$7.50
• Estimated growth rate: 7% (steady consumer staples growth)
• Current AAA bond yield (Y): 4.9%

Calculation:

V = $7.50 x (8.5 + 2 x 7) x 4.4 / 4.9 V = $7.50 x (8.5 + 14) x 0.898 V = $7.50 x 22.5 x 0.898 V = $7.50 x 20.21 V = $151.53

Graham's intrinsic value: ~$151.53 Current market price: $164.91

Verdict: PepsiCo is trading about 9% above its Graham intrinsic value. By this measure, it's slightly overvalued. A value investor might wait for a pullback before buying.

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The Margin of Safety — Graham's Insurance Policy

Graham didn't just buy at intrinsic value. He insisted on a margin of safety — typically buying at least 25-35% below intrinsic value.

Why? Because:

• Your growth estimates might be wrong
• The economy might shift
• Unexpected events happen

The margin of safety protects you from your own mistakes. It's like buying a house appraised at $300,000 for $200,000 — even if the appraiser was a little optimistic, you're still getting a deal.

Using our Pfizer example:

• Intrinsic value: $31.90
• 25% margin of safety target: $31.90 x 0.75 = $23.93
• Current price: $26.59

Even with a 25% margin, Pfizer at $26.59 doesn't quite qualify. A strict Graham investor might wait. But at a 17% discount with a 6.3% yield, it's firmly in the "watch closely" zone.

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Sensitivity Analysis: Why the Growth Rate Matters So Much

The growth rate (g) is the most subjective input. Let's see how different growth assumptions change Pfizer's valuation:

Growth Rate (g)	Intrinsic Value	Discount/Premium to $26.59
5%	$24.12	+10% (overvalued)
8%	$31.90	-17% (undervalued)
10%	$37.09	-28% (deeply undervalued)
12%	$42.29	-37% (screaming buy)

This is why Graham emphasized conservative estimates. Using 5% growth, Pfizer looks slightly overvalued. At 8%, it looks like a deal. The truth is probably somewhere in between — which is exactly why you want a margin of safety.

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Limitations of Graham's Formula

No formula is perfect. Here are the honest limitations:

1. Growth Rate Is a Guess

The "g" variable is an estimate. Get it wrong, and your entire valuation shifts dramatically.

2. It Doesn't Work for Every Company

The formula works best for established, profitable companies with predictable earnings. It doesn't work well for startups, high-growth tech (where g might be 30%+), or companies with negative earnings.

3. Bond Yields Are Dynamic

The 4.4/Y adjustment ties your valuation to the bond market. In unusual rate environments, this can produce distorted results.

4. It's a Starting Point, Not a Verdict

Graham used this formula as one tool among many. He also analyzed balance sheets, debt levels, dividend history, and management quality.

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How to Use the Formula in Practice

Here's a practical workflow:

1. Screen for candidates. Find companies with positive EPS, P/E under 20, and dividend history using any free stock screener.

2. Run the Graham formula. Calculate intrinsic value. It takes 30 seconds per stock.

3. Apply the margin of safety. Only dig deeper into stocks trading 25%+ below intrinsic value.

4. Analyze the fundamentals. Check debt-to-equity, dividend payout ratio, competitive moat, and management quality.

5. Diversify. Graham recommended holding 10-30 stocks. Don't concentrate in one "undervalued" pick.

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The Bottom Line

Benjamin Graham's intrinsic value formula isn't magic. It's math. Simple, transparent math that any investor can learn in five minutes and use for a lifetime.

In a world of TikTok stock tips, meme stock mania, and algorithmic trading, there's something powerful about sitting down, running the numbers, and making a decision based on what a business is actually worth.

That's what separates investors from speculators. And it's been working for over 70 years.

Want more stock valuations using Graham's formula? Subscribe to Poor Man's Stocks for weekly breakdowns of undervalued stocks and dividend picks.

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This is educational content, not financial advice. Stock data as of March 3, 2026 from publicly available sources. Always do your own research before making investment decisions.