Stock Valuation Calculator

Stock valuation is the process of determining the intrinsic or fair value of a company's shares. Unlike a stock's market price — which reflects what buyers and sellers agree on at any given moment — intrinsic value reflects what the business is fundamentally worth based on its earnings power, dividends, assets, and growth prospects. Investors compare intrinsic value to market price to identify undervalued or overvalued opportunities.

This stock valuation calculator uses three widely accepted methods simultaneously: the Dividend Discount Model (DDM), the Graham Number, and Relative Valuation via industry P/E ratio. Each method approaches value from a different angle — income, assets, and market comparables — and together they produce a fair value range. The midpoint of that range is displayed as the primary fair value estimate.

Understanding how to value a stock is one of the most important skills in fundamental investing. Value investors like Benjamin Graham and Warren Buffett built their frameworks on precisely these kinds of calculations: comparing what you pay (market price) to what you get (business value). A stock trading below its fair value range may offer a margin of safety; one trading above it warrants caution.

This calculator also surfaces key ratios — P/E, P/B, PEG, dividend yield, earnings yield, and implied ROE — that give you a fuller picture of where the stock stands relative to its fundamentals and the broader market. Use these outputs together with qualitative research (competitive position, management quality, balance sheet health) to make well-informed investment decisions.

The calculator applies three distinct valuation models to the same stock data and synthesizes a fair value range from the results. Each formula is described below.

1. Dividend Discount Model (Gordon Growth Model)

The DDM estimates intrinsic value as the present value of all future dividends, assuming they grow at a constant rate forever. It is most reliable for mature, dividend-paying companies with predictable payout histories.

2. Graham Number

Developed by Benjamin Graham, this formula combines earnings per share and book value to estimate a conservative upper price for a defensive investor. The constant 22.5 represents a maximum P/E of 15 multiplied by a maximum P/B of 1.5 (15 × 1.5 = 22.5).

3. Relative Valuation (Industry P/E Method)

This approach asks: if the market pays the industry-average P/E multiple for similar companies, what should this stock be worth? It anchors the valuation to current market sentiment for the sector rather than absolute fundamentals.

Fair Value Range and Midpoint

The three model outputs are compared: the lowest becomes the fair value floor, the highest the fair value ceiling, and the midpoint is the primary estimate shown. If the current price falls below the low end, the stock is flagged as Potentially Undervalued; above the high end as Potentially Overvalued; inside the range as Fairly Valued.

The Graham Number is a simple but powerful screening tool introduced by Benjamin Graham in his classic work The Intelligent Investor. It sets a maximum price a defensive investor should pay for a stock by combining two fundamental value anchors: earnings per share and book value per share.

The formula is: Graham Number = √(22.5 × EPS × Book Value Per Share). The constant 22.5 is derived from Graham's rule of thumb that a P/E ratio should not exceed 15 and a P/B ratio should not exceed 1.5. Multiplying these two limits gives 22.5 — a composite ceiling on the price an investor should pay relative to both earnings and assets.

For example, a stock with $3 EPS and $25 book value per share has a Graham Number of √(22.5 × 3 × 25) = √1687.5 ≈ $41.08. If the stock trades below this level, it may pass Graham's conservative valuation screen. Importantly, the Graham Number works best for asset-heavy businesses like banks, insurers, and industrial companies. It may undervalue high-growth technology or capital-light businesses whose earnings far exceed their book assets.

The Graham Number does not account for future growth expectations, which is why the calculator pairs it with the DDM (which captures growth explicitly) and relative valuation (which captures market pricing). Using all three together gives a more complete picture than relying on any single method.

Beyond the three valuation models, the calculator computes six important stock ratios that analysts and investors use every day. Understanding each one helps you interpret the fair value estimate in context.

A PEG ratio below 1.0 is often interpreted as a sign that the stock may be undervalued relative to its growth. Earnings yield is particularly useful when comparing stocks to bonds: if earnings yield exceeds the 10-year Treasury yield by a wide margin, equities may offer better risk-adjusted returns. Implied ROE tells you how efficiently management uses shareholder equity — higher sustained ROE generally supports a premium valuation.

Getting accurate results from this stock valuation calculator requires reliable input data. Here is where to find each figure and how to interpret the outputs.

Finding the Inputs

Current Stock Price: Use today's market price from any financial data provider. This is the price you are comparing against intrinsic value.

Earnings Per Share (EPS): Use trailing twelve-month (TTM) diluted EPS from the company's income statement or a financial data site. Avoid using one-time or adjusted EPS unless you understand the adjustments.

Annual Dividend: The most recently declared annual dividend per share. For companies that pay quarterly, multiply the most recent quarterly dividend by four. Set to zero for non-dividend-paying stocks — DDM will return zero but the other two models still apply.

Book Value Per Share: Total shareholders' equity divided by shares outstanding, found on the balance sheet. Some financial sites report this directly.

Expected Growth Rate: Your estimate for long-term earnings or dividend growth. Analyst consensus estimates, historical growth averages, or the company's own guidance are common starting points. Be conservative — the DDM is very sensitive to this input.

Required Return: The minimum annual return you require to hold this stock. A common approach is to use the risk-free rate (10-year Treasury yield) plus an equity risk premium plus a company-specific risk premium. Many investors use 10–15% for equities.

Industry Average P/E: Look up the average or median P/E ratio for the company's industry or sector. Financial data providers and market research sites publish sector P/E tables regularly.

Interpreting the Output

The fair value midpoint is the average of the lowest and highest model estimates. A stock trading materially below the fair value low end offers a potential margin of safety; one well above the high end warrants scrutiny. Use the assessment label — Potentially Undervalued, Fairly Valued, Potentially Overvalued — as a starting point, not a final verdict. Always cross-check with qualitative analysis before making investment decisions.

Quantitative valuation models are powerful tools, but they carry important limitations that every investor should understand before acting on the results.

DDM sensitivity to growth assumptions: The Gordon Growth Model is extremely sensitive to the spread between the required return (r) and the growth rate (g). Small changes in either input can move the DDM value dramatically. If you expect 11% growth but require 12% return, a 1% spread produces very different values than a 4% spread. Always test a range of growth scenarios.

Graham Number and intangible assets: The Graham Number uses book value, which may substantially understate the value of companies with significant intangible assets, brands, or intellectual property. Technology platforms and pharmaceutical companies often trade at large premiums to book that the Graham Number alone cannot justify.

Relative valuation is anchored to the market: Using the industry P/E assumes the market is broadly correct in pricing the sector. In bubble conditions, an industry P/E of 40x will produce elevated relative values even for mediocre businesses. In bear markets, a compressed sector P/E may understate value.

Models assume stable conditions: All three models work best for established, profitable businesses with predictable earnings and dividends. They are less reliable for early-stage companies, cyclical businesses at earnings extremes, or companies undergoing significant restructuring.

Use this stock valuation calculator as one input in a broader investment thesis. Pair these quantitative outputs with an assessment of competitive moats, balance sheet health, management track record, and macroeconomic context. The numbers provide a framework; judgment fills the gaps.