---
type: "Topics"
locale: "en"
url: "https://longbridge.com/en/topics/39998926.md"
description: "Benjamin Graham's Simple Valuation Formula for Growth Stocks Value = Current (Normal) Earnings × (8.5 + 2 × Expected Growth Rate) The growth rate here refers to the long-term annual average growth rate over the next 7 to 10 years. It's a rule-of-thumb formula for quickly estimating a stock's reasonable price, not a precise calculation; it's more like an empirical rule. Core Logic: - 8.5: Represents the reasonable price-to-earnings (P/E) ratio for a company with no growth (growth rate = 0).- 2 × Growth Rate: The premium for growth; faster growth leads to a higher valuation. So, essentially, the formula calculates: Reasonable P/E Ratio = 8.5 + 2gReasonable Value = Earnings Per Share × Reasonable P/E Ratio   2. How to understand the numbers? Take the simplest example: Scenario A: Company with zero growth (g=0%) Reasonable P/E Ratio = 8.5 + 0 = 8.5x P/E Scenario B: Company growing 5% annually Reasonable P/E Ratio = 8.5 + 2×5 = 18.5x P/E Scenario C: Company growing 10% annually Reasonable P/E Ratio = 8.5 + 2×10 = 28.5x P/E Scenario D: Growing 15% 8.5 + 30 = 38.5x P/EFor every additional 1% of growth, the valuation gets an extra 2x P/E. That's the meaning of the formula.   3. Why use the 7-10 year growth rate? Because Graham believed: - Short-term growth (1-2 years) is unreliable and often just a cyclical upturn.- Only long-term, sustainable growth deserves a high valuation. Therefore, the formula requires you to use the average annual compound growth rate over the next 7-10 years, not this year's sudden surge. 4. Why did Graham say "I have never used it myself"? This statement is crucial and reflects his true attitude: 1. It's only a rough reference, not a basis for investment.2. He personally placed greater emphasis on margin of safety, asset value, liabilities, and cash flow, rather than such growth formulas.3. The growth rate itself is a forecast, and forecasts are easily wrong, making the formula naturally inaccurate.4. He feared people would blindly believe in the formula, so he specifically emphasized "I don't use it myself." In short:The formula can be used to quickly ballpark a reasonable range, but it shouldn't be used to make real investment bets.  5. How to understand it more practically in the real world?- A mature company with no growth: reasonable valuation is roughly 8-10x P/E.- Growth of 5%: reasonable valuation 15-20x P/E.- Growth of 10%: reasonable valuation 25-30x P/E.- Growth of 15%: reasonable valuation 35-40x P/E. If it's above this range, it's likely expensive; if below, it might be cheap. For a company with stable growth, the reasonable P/E ratio is approximately equal to 8.5 plus twice the long-term growth rate.But this is only a rough guideline; don't take it too seriously, and definitely don't use it to make major investment decisions."
datetime: "2026-04-17T13:17:12.000Z"
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author: "[奥马哈的信徒皮球](https://longbridge.com/en/profiles/18328374.md)"
---

# Benjamin Graham's Simple Valuation Formula for Gro…