Vet67to82's Blog : Citigroup (C) FairValue

  In the many differing ways to calculate whether to buy (undervalued) or sell (overvalued) a stock, one needs a basis to determine FAIR VALUE (FV) of the stock or security.   The Graham number estimates the maximum price an investor should pay for a stock after a formula developed by Mr. Benjamin Graham.  The formula calculates Fair Value using current Earnings per Share (EPS) (trailing twelve months or ttm) and book value (BV) per share. 

Assumptions in the Graham number calculation:

 (a) the P/E should be no greater than 15

 (b) the price per book value should be no greater than 1.5

 (c) the product of a and b should be no greater than 22.5

So, the Formula looks lke this:

  FairValue (FV) = SQRT( 22.5 x BV x EPS )

  SQRT = square root

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Citigroup (C) $4.52 has EPS of $0.36 ttm and BV of $5.63. 

 .... which calculates to a FairValue of $6.75.  therefore Citigroup is undervalued to FV by $2.24 or 49.73 percent. 

 Citigroup also has a Tangible Book Value per Share of $4.31. 

 To insure one is not cherry picking the data to support the outcome one wants ( or making math errors ) it's alway important to have alternative means of calculating the FairValue (FV) for comparison and confirmation.     

 ... more to follow ..