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Toll Brothers Inc (NYSE:TOL)
Graham Number
$30.52 (As of Oct. 2014)

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 Toll Brothers Inc is $32.72. Toll Brothers Inc's graham number for the quarter that ended in Oct. 2014 was $30.52. Therefore, Toll Brothers Inc's Price to Graham Number ratio for today is 1.07.

TOL' s 10-Year Price to Graham Number Range
Min: 0.52   Max: 2.14
Current: 1.07

0.52
2.14

During the past 13 years, the highest Price to Graham Number ratio of Toll Brothers Inc was 2.14. The lowest was 0.52. And the median was 0.92.

TOL's Price to Graham Number is ranked higher than
74% of the 540 Companies
in the Global Residential Construction industry.

( Industry Median: 1.29 vs. TOL: 1.07 )

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.

Toll Brothers Inc's Graham Number for the fiscal year that ended in Oct. 2014 is calculated as

Graham Number
=SquareRoot of (22.5*Tangible Book Value per Share*Earnings Per Share)
=SquareRoot of (22.5*(Total Equity - Intangibles)*Net Income (Continuing Operations))/Shares Outstanding
=SquareRoot of (22.5*(3854.376 - 0)*340.032)/177.91
=30.52

Toll Brothers Inc's Graham Number for the quarter that ended in Oct. 2014 is calculated as

Graham Number
=SquareRoot of (22.5*Tangible Book Value per Share*Earnings Per Share)
=SquareRoot of (22.5*(Total Equity - Intangibles)*Net Income (Continuing Operations))/Shares Outstanding
=SquareRoot of (22.5*(3854.376 - 0)*340.033)/177.91
=30.52

* All numbers are in millions except for per share data and ratio. All numbers are in their own 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.

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

Price to Graham number=Share Price (Today)/Graham number (Q: Oct. 2014 )
=32.72/30.52
=1.07

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Be Aware

Please keep these in mind:

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

Intrinsic Value (DCF Projected), Intrinsic Value (DCF), Intrinsic Value (DE), Tangible Book Value per Share, Earnings Per Share, Total Equity, Net Income, Total Shares Outstanding


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Toll Brothers Inc Annual Data

Oct05Oct06Oct07Oct08Oct09Oct10Oct11Oct12Oct13Oct14
grahamnumber 45.4747.3510.730.000.000.009.1834.6921.1230.52

Toll Brothers Inc Quarterly Data

Jul12Oct12Jan13Apr13Jul13Oct13Jan14Apr14Jul14Oct14
grahamnumber 13.9734.6934.9135.3335.1321.1223.3925.7728.6330.52
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