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Netflix Inc (NAS:NFLX)
Graham Number
\$7.00 (As of Sep. 2016)

Graham Number is a figure that measures a stock's fundamental value by taking into account the company's earnings per share and book value per share. The Graham number is the upper bound of the price range that a defensive investor should pay for the stock. According to the theory, any stock price below the Graham number is considered undervalued, and thus worth investing in.

As of today, the stock price of Netflix Inc is \$119.91. Netflix Inc's graham number for the quarter that ended in Sep. 2016 was \$7.00. Therefore, Netflix Inc's Price to Graham Number ratio for today is 17.12.

NFLX' s Price to Graham Number Range Over the Past 10 Years
Min: 1.94   Max: 20
Current: 17.13

1.94
20

During the past 13 years, the highest Price to Graham Number ratio of Netflix Inc was 20.00. The lowest was 1.94. And the median was 4.30.

NFLX's Price to Graham Number is ranked lower than
100% of the 279 Companies
in the Global Pay TV industry.

( Industry Median: 1.87 vs. NFLX: 17.13 )

Graham Number is a combination of asset valuation and earnings power valuation. It is a very conservative way of valuing a stock.

Definition

Graham Number is a concept based on Ben Graham's conservative valuation of companies.

Netflix Inc's Graham Number for the fiscal year that ended in Dec. 2015 is calculated as

 Graham Number = sqrt of (22.5 * Tangible Book Value per Share * EPS without Non-Recurring Items (NRI)) = sqrt of (22.5 * 5.196 * 0.28) = 5.72

Netflix Inc's Graham Number for the quarter that ended in Sep. 2016 is calculated as

 Graham Number = sqrt of (22.5 * Tangible Book Value per Share * EPS without Non-Recurring Items (NRI) (TTM)) = sqrt of (22.5 * 5.893 * 0.37) = 7.00

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Explanation

Ben Graham actually did not publish a formula like this. But he wrote in The Intelligent Investor (1948 version) regarding to the criteria for purchases:

Current price should not be more than 15 times average earnings of the past three years.

Current price should not be more than 1.5 times the book value last reported. However, a multiplier of earnings below 15 could justify a correspondingly higher multiplier of assets. As a rule of thumb we suggest that the product of the multiplier times the ratio of price to book value should not exceed 22.5. (This figure corresponds to 15 times earnings and 1.5 times book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value, etc.)

Unlike valuation methods such as DCF or Discounted Earnings, the Graham number does not take growth into the valuation. Unlike the valuation methods based on book value alone, it takes into account the earnings power. Therefore, the Graham Number is a combination of asset valuation and earnings power valuation.

In general, the Graham number is a very conservative way of valuing a stock. It cannot be applied to companies with negative book values.

Netflix Inc's Price to Graham number Ratio for today is calculated as

 Price to Graham number = Share Price (Today) / Graham number (Q: Sep. 2016 ) = 119.91 / 7.00 = 17.12

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Be Aware

1. Graham Number does not take growth into account. Therefore it underestimates the values of the companies that have good earnings growth. We feel that if the earnings per share grows more than 10% a year, Graham Number underestimates the value.
2. Graham Number punishes the companies that have temporarily low earnings. Therefore, an average of earnings makes more sense in the calculation of Graham Number.
3. Graham Numbers underestimates companies that are light with book.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Netflix Inc Annual Data

 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 grahamnumber 1.21 1.43 1.60 1.84 2.73 4.71 1.33 4.32 7.83 5.72

Netflix Inc Quarterly Data

 Jun14 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 grahamnumber 0.00 0.00 7.76 7.39 0.00 0.00 5.72 5.94 6.37 7.00
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