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Graham Number

By Pleadian
Updated
Graham Number is named after the “father of value investing,” Benjamin Graham, who was a mentor of Warren Buffett. The figure takes into account earnings per share and book value per share to measure a stock's maximum fair market value. In other words, it is the upper end of the price range that a defensive investor should pay for the stock.

The Graham Number = Square Root of (22.5) x (tmm EPS) x (mrq Book Value per Share).

The 22.5 is included in the formula as a rule of thumb to account for Graham's assumption that the price-to-earnings ratio should not be over 15 and the price to book ratio should not be over 1.5 for an undervalued stock. So, the number is generated as (P/E of 15) x (P/B of 1.5) = 22.5.

So the script generates a Graham number plot.
Release Notes
Using Diluted EPS rather than Basic
EPS and Book value per share time period settings
Release Notes
Chart line coloring feature. When the price is below Graham number chart line is green otherwise red.
Release Notes
When sqrt(x) is not possible in real numbers on an interval paint a gray line.
fundamental-analysisgrahamTrend Analysis

Open-source script

In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in publication is governed by House rules. You can favorite it to use it on a chart.

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Pleadian

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