How to calculate a Graham price ceiling
Learn Graham price ceiling: EPS, book value, √(22.5 × EPS × BVPS), a practical example, and when to use it alongside income ceilings.
A target dividend yield ceiling answers "what yield do I need?" Graham answers a different question: what is a conservative upper bound from earnings and book value for an operating company?
This guide covers the classic Graham number, a USD example with a stock like AAPL-style inputs, and when to prefer income ceilings for REITs instead.
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Choose Graham, enter EPS and book value per share, set max P/E and P/B, and apply a safety margin.
The Graham formula
A common educational form is:
Graham value = √(22.5 × EPS × BVPS)
The 22.5 constant comes from a max P/E of 15 times a max P/B of 1.5. After that, apply your own safety margin (for example 20%) to get a personal buy ceiling.
Example
Suppose EPS is $6.00 and book value per share is $20:
√(22.5 × 6 × 20) = √2,700 ≈ $51.96
With a 20% margin: ceiling ≈ $41.57. If the quote is $38, you have room; if it is $55, Graham says wait.
When Graham is a poor fit
- REITs: prefer AFFO / target yield or Gordon-style income models, not classic Graham.
- Negative earnings or thin book value: the square-root formula breaks down.
- High-growth tech with little tangible book: consider P/E ceilings or other frameworks.
Graham vs income ceiling
Use Graham for profitable operating companies. Use a dividend yield price ceiling for income names and many REITs. In Portfolio Ceiling you can track both and take the more conservative number.
Track Graham ceilings per holding
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Frequently asked questions
Does the Graham method work for REITs?+
Classic Graham was designed for operating companies with earnings and book equity. For REITs, AFFO/target yield or NAV-style approaches are usually more appropriate.
What is the difference between Graham and target yield?+
Target yield uses dividend or AFFO and a required yield. Graham uses EPS and book value. Prefer yield for income theses; Graham for earnings-driven stocks.
Why is the Graham constant 22.5?+
It comes from a max P/E of 15 times a max P/B of 1.5 (15 × 1.5 = 22.5). It is an educational simplification; cyclical sectors may need stricter multiples.
Where can I calculate a Graham ceiling for free?+
Use portfolioceiling.com/price-ceiling, or create a free account to track ceilings per holding.