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V = EPS x (8.5 + 2g), or
Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate)
An online search for "Benjamin Graham formula" will bring up dozens of stock screeners and analyst reports recommending stocks based on this formula.
(Note: Serenity too uses this formula, but to calculate the market's expected growth rate from the stock price, as Graham intended, and not the other way around.)
What Graham Actually Wrote:
Graham was completely against any kind of charting/technical analysis/forecasting. He always analyzed stocks based on past performance and wrote entire chapters on stock selection. This formula is not mentioned anywhere in them.
He only mentions this formula to show how unrealistic the market's growth expectations are, when seen retrospectively.
A few paragraphs after mentioning this formula, he wrote:
There is even a footnote in the original 1973 edition of "The Intelligent Investor" (click here to see a scan) to clarify that this equation doesn't really give any "true value."
Warning: This material is supplied for illustrative purposes only, and because of the inescapable necessity in security analysis to project the future growth rate for most companies studied. Let the reader not be misled into thinking that such projections have any high degree of reliability or, conversely, that future prices can be counted on to behave accordingly as the prophecies are realized, surpassed, or disappointed.
This footnote is missing in more recent editions of the book (it's now in the "endnotes" section, possibly the cause of the confusion). But the warning is present in the new editions as well.
Some Real Graham Stocks:
The stocks mentioned below, at their current prices, meet Graham's criteria for bargain issues, or net-current-asset stocks.
Given below is a sample list of stocks with the highest expected growth rates.
| Name | Symbol | Price/ Earnings | Price/ Book | Expected annual growth rate | Graham price | Current price |
| Courier Corp | CRRC | 1,086.00 | 0.88 | 538.75% | $11 | $10.93 |
| PC-Tel Inc | PCTI | 588.00 | 0.95 | 289.75% | $6.38 | $5.85 |
| Prudential Bancorp of PA | PBIP | 521.00 | 0.90 | 256.25% | $5.73 | $5.21 |
| Axis Capital Hldgs Ltd | AXS | 478.71 | 0.71 | 235.11% | $35.48 | $33.81 |
As can be seen, these stocks come with very high PE values, which is also contrary to the myth that Graham only recommended cheap stocks.
Next is a contrasting list of NCAV stocks with the lowest expected growth rates.
| Name | Symbol | Price/ Earnings | Price/ Book | Expected annual growth rate | Graham price | Current price |
| Insignia Systems Inc | ISIG | 0.50 | 0.85 | -4.00% | $2.04 | $1.58 |
| Network Engines Inc | NEI | 1.69 | 0.64 | -3.40% | $2.17 | $1.43 |
| First Bancorp (Puerto Rico) | FBP | 1.70 | 0.53 | -3.40% | $5.82 | $3.57 |
| Amtech Systems Inc | ASYS | 1.78 | 0.36 | -3.36% | $12.34 | $3.89 |
The Best Stocks:
And finally, here's a sample list of what Graham called "stocks for the enterprising investor."
Enterprising stocks are not of defensive investment grade, but are of far better quality than simple bargain or NCAV stocks.
| Name | Symbol | Price/ Earnings | Price/ Book | Required annual growth rate | Graham price | Current price |
| Hewlett-Packard Co | HPQ | 5.63 | 0.90 | -1.44% | $25.04 | $19.70 |
| DeVry Inc | DV | 4.17 | 0.92 | -2.17% | $25.42 | $19.23 |
| Walter Energy Inc. | WLT | 6.43 | 1.06 | -1.04% | $41.77 | $38.89 |
| WellPoint Inc | WLP | 7.54 | 0.77 | -0.48% | $65.25 | $57.91 |
The Irony
As can be seen, the actual investment worthiness of a stock is quite independent of the market's expected growth rate for it, and far more complex to calculate.
The above lists are samples only; the complete list of stocks meeting Graham's various sets of investment criteria can be seen on The Benjamin Graham stock screener.
But the irony of this entire story is that the very formula with which Graham meant to show how unrealistic market expectations were, is the formula used the most today as the "Benjamin Graham growth stock formula!" There is perhaps good reason why Graham's protege and most famous student, Warren Buffett, said "Beware of geeks bearing formulas."
Disclaimer: The lists of Graham stocks were arrived at by automated quantitative analysis and were not verified individually. Before making a final investment decision, check for any recent changes, especially for recent stock splits.
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Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate)
Note: Serenity too uses this formula, but to calculate the market's expected growth rate from the stock price, as Graham intended, and not the other way around.
Well if that's the case, why didn't Graham express the formula as:
g = (V/EPS - 8.5) / 2
One might refer to page 537 of the 4th edition of SA in which among other purposes, Graham uses this formula to show how different assumptions about the expected growth rate affects the calculated value (V), not the other way around as these authors assert. IMO one would be better served by reading some of Graham's interviews and articles on this subject to learn how Graham really intended for this formula to be applied, rather than rely on someone else's (mis)interpretation.
Furthermore it would appear that the authors of this article have not incorporated Graham's further elaboration of this formula, published in The Renaissance of Value: the Proceedings of a Seminar on the Economy, Interest Rates, Portfolio Management, and Bonds vs.Common Stocks (1974): 1-12, Charlottesville, VA: The Financial Analysts Research Foundation:
" This valuation--like those it purported to approximate--had the great defect of failing to allow for changes in the basic rate of interest. But the one development in the past decade that has had the greatest influence on stock values--and somewhat belatedly, on stock prices--has been the phenomenal advance in interest rates…
It would seem logical to me to make common-stock valuations vary inversely with representative current interest rates…"
Graham then introduces a modified formula:
V = EPS x (37.5 + 8.8G) / AAA interest rate
Graham proceeds to explain in some detail his thoughts about this issue.
Again, IMO one will be better served by relying on Graham's original material, rather than rely on (mis)conceptions of others.
Like so many other profound works, more people seem to pay lip service to the Intelligent Investor and Ben's other books than actually read them. As William Ruane is quick to point out, there are many misinterpretations of Ben's teachings. Graham himself once said that his books " have probably been read and disregarded by more people than any book on finance that I know of." Some of the ignored or misunderstood points are subtle, but important.
-- Benjamin Graham on Value Investing, by Janet Lowe