The Graham Dodd Method in Fundamental Stock Analysis.
Calculate earnings per share (EPS) and sales growth with this calculator and get an estimate of the true value of the stock (fair value). Earnings per share and sales growth can be found via a Google search, in the annual report on the company’s website under “Investors Relations” or on relevant stock portals.
In our Premium Tools, a large number of different evaluation models are used and the required data is loaded automatically. Find the Graham Dodd Fair Value to more than 45.000 stocks worldwide.
The Graham-Dodd Method of Stock Valuation
The Graham-Dodd method, also known as the Graham-Dodd valuation model, is a method for calculating the intrinsic value of a stock based on the principles of value investing. The method was developed by Benjamin Graham and David Dodd, two of the pioneers of value investing, and it’s based on the idea that a stock’s intrinsic value can be estimated by examining its financial statements and other fundamental data.
The Graham-Dodd method involves calculating the intrinsic value of a stock based on the company’s earnings power, its financial strength, and its growth potential. The method starts by estimating the company’s “normal” earnings power, which is based on its average earnings over a period of several years. This normal earnings figure is then adjusted for the company’s financial strength and growth prospects to arrive at an estimate of its intrinsic value.
The Graham-Dodd method is considered a classic approach to value investing and is widely recognized as an effective way to calculate the intrinsic value of a stock. However, like all valuation methods, it has its limitations and should not be used in isolation. It’s important to consider a variety of factors, including market conditions and industry trends when using the Graham-Dodd method to estimate the intrinsic value of a stock.
Graham Dodd Fair Value to Determine Intrinsic Value.
The Graham Dodd Formula rates growth stocks by using the magic formula of two stock market legends! Benjamin Graham was the tutor of Warren Buffet and was the inventor of fundamental securities analysis. He created the basis for the value approach, which invests in stocks that are worth more than they currently cost.
For this purpose, Graham and Dodd presented a valuation method as early as 1962, which uses a formula to determine the approximate true value of a stock. Follow in the footsteps of stock market legends in this simple Graham Dodd calculator and try out the valuation approach from the 1962 book Security Analysis by Benjamin Graham and David L. Dodd.
Graham Dodd Valuation Formula:
Graham worked hard to develop a formula that would simplify stock valuation. He also presents his valuation formulas in Benjamin Graham’s classic book “The Intelligent Investor”. Graham calls fair value “intrinsic value”. Original Benjamin Graham Dodd Formula to calculate the intrinsic value of a stock:
Intrinsic Value = Earnings per Share * (8,5 + 2 Growth)
Earnings per share and growth can be read from the annual report of every stock corporation. In addition, there are stock exchange portals that clearly display this information. Earnings per share are the company’s profit divided by the number of shares issued.
For earnings per share, one can often find “estimates” online, that is, forecast earnings per share. These estimates can of course also flow into the input of this calculator. For growth, one should estimate profit growth and sales growth over the next 10 years. An average value from the past year is suitable for estimating the correct growth.
In this calculator, we use the further developed method in which the calculator uses three different formulas depending on how high the entered growth is:
- If growth is less than 5%: earnings per share * (8.5 + 2 growth)
- If growth of 5 to 10%: Earnings per share * 15
- If growth is greater than 15%: Earnings per share * growth
Depending on the input, one of the three formulas is selected in the background of the calculation, and the fair value is calculated.
Limitations and Critics:
Benjamin Graham placed the formula rather inconspicuously in his book “The Intelligent Investor” and also indicated that this formula is only an indication of the possible intrinsic value (fair value) of a stock. In addition, Graham neglects many other important factors that are important to the success of a company.
For this reason, we launched the Fair Value Calculator, which uses further developments and other online tools to determine the intrinsic value of stocks more precisely. In addition to the advanced manual calculators, which use 7 key figures instead of just 2 fundamental key figures, all evaluation models are clearly summarized in the premium area of the Fairvalue calculator.
With the premium tools of the Fair Value Calculator, you no longer have to search for the fundamental key figures yourself. The Premium Tools automatically load the fundamental key figures from the annual report into the formulas and clearly display the already calculated fair values in the database. You can then summarize these in a watchlist in your personal dashboard.
A stock screener and portfolio manager help you build a meaningful portfolio and tools to determine the intrinsic value of an entire industry and even the entire market are also available. All at a fair price.
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