Intrinsic Value & Margin of Safety Explained

Intrinsic value is the 'true' worth of a stock based on its fundamentals. When the market price is below intrinsic value, the stock is undervalued — and the difference is your margin of safety.

The Graham Number: Benjamin Graham's simple formula: Graham Number = sqrt(22.5 x EPS x Book Value Per Share). If the stock price is below the Graham Number, it is considered undervalued. Example: HBL has EPS Rs 41 and BVPS Rs 300. Graham Number = sqrt(22.5 x 41 x 300) = sqrt(276,750) = Rs 526. HBL trades at Rs 290 — well below its Graham Number, suggesting it is undervalued.

Margin of Safety: The percentage difference between intrinsic value and market price. Formula: (Intrinsic Value - Price) / Intrinsic Value x 100. For HBL: (526 - 290) / 526 = 45% margin of safety. Graham recommended buying with at least 25% margin of safety.

Limitations: Graham Number works best for stable, profitable companies with positive book value. It does not work well for: high-growth tech stocks (where future earnings matter more), banks (use P/B instead), or companies with negative earnings.

On MunafaPlus: Ask the AI Assistant 'What is the Graham Number for HBL?' or use the value_screen tool with max_pe and max_pb filters to find undervalued stocks. The stock detail page at /stock/{symbol} shows P/B, ROE, and EPS with color-coded gauges.