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Electro Rent Corp  (NAS:ELRC) Graham Number: $8.73 (As of Feb. 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 Electro Rent Corp is $15.50. Electro Rent Corp's graham number for the quarter that ended in Feb. 2016 was $8.73. Therefore, Electro Rent Corp's Price to Graham Number ratio for today is 1.78.

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


Historical Data

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

* Premium members only.

Electro Rent Corp Annual Data

May06 May07 May08 May09 May10 May11 May12 May13 May14 May15
Graham Number Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 14.81 15.64 14.06 13.37 11.48

Electro Rent Corp Quarterly Data

May11 Aug11 Nov11 Feb12 May12 Aug12 Nov12 Feb13 May13 Aug13 Nov13 Feb14 May14 Aug14 Nov14 Feb15 May15 Aug15 Nov15 Feb16
Graham Number Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 12.05 11.57 10.62 9.46 8.73

Competitive Comparison
* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap.


Calculation

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

Electro Rent Corp's Graham Number for the fiscal year that ended in May. 2015 is calculated as

Graham Number
=sqrt of (22.5* Tangible Book per Share *EPS without NRI)
=sqrt of (22.5*9.296*0.63)
=11.48

Electro Rent Corp's Graham Number for the quarter that ended in Feb. 2016 is calculated as

Graham Number
=sqrt of (22.5*Tangible Book per Share*EPS without NRI (TTM))
=sqrt of (22.5**0.37)
=8.73

* 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.

Electro Rent Corp's Price to Graham number Ratio for today is calculated as

Price to Graham number=Share Price (Today)/Graham number (Q: Feb. 2016 )
=15.50/8.73
=1.78

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


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