Frankly speaking, there is no sure shot formula to identify multi bagger stocks. Reason, very simple, because it all lies in future. One can never say with certainty which company is going to perform greatly in future. But in this world of uncertainty, we have few tools available with us which can guide us. Graham number is one of them.
Actually, Graham number cannot tell which company is going to perform in future, instead of this, it basically helps to identify undervalued stocks which may provide great returns when their true value is recognized by market. Graham number is basically is the price at which a stock is a value buy.
Graham number = Sqr. root [ 22.5 x Book Value per share x Earnings per share]
If any stock is available below graham number, it is a good buy.
Book value per share = (Assets - external liabilities)/ no. of outstanding shares
Earnings per share = PAT / no. of outstanding shares
Disclaimer :- Graham number should only be used in context. There may be other reasons for a share trading below graham number. thus, a buy decision cannot be made just on the basis of graham number, other surrounding facts and things are equally important.
No comments:
Post a Comment