Margin of Safety Calculator
Calculate the discount between a stock's intrinsic value and its market price using Benjamin Graham's valuation formula. A core principle of value investing.
Last updated: May 2026
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About this calculator
Margin of safety is the cornerstone principle of value investing, popularized by Benjamin Graham: buy a stock only when its market price is meaningfully below your estimate of its intrinsic worth, so that errors in your analysis or bad luck still leave you protected. This calculator first estimates intrinsic value using Graham's classic formula, V = EPS × (8.5 + 2g), where EPS is earnings per share, 8.5 is the base price-to-earnings ratio Graham assigned to a no-growth company, and g is the expected annual growth rate. It then computes the margin of safety as a percentage discount: margin of safety = ((intrinsic value − market price) / intrinsic value) × 100. A positive result means the stock trades below its estimated intrinsic value (a discount, which value investors seek); a negative result means it trades above intrinsic value (a premium). Graham typically looked for a margin of safety of at least 20–30% or more before buying, to cushion against the inherent uncertainty of forecasting. Edge cases and cautions: the formula is a simplification — Graham later revised it to incorporate the prevailing AAA corporate bond yield, V = EPS × (8.5 + 2g) × 4.4 / Y, because the original was calibrated to a specific interest-rate environment and can overvalue stocks when rates are high. The growth rate g should be a conservative long-term estimate, not a recent peak, since the formula is very sensitive to it. The output is only as good as your EPS and growth inputs, and it ignores debt, cash, cyclicality, and qualitative factors. Treat it as one screening tool within a broader analysis, never a precise valuation.
How to use
Example 1 — a stock with $5 EPS, 5% expected growth, trading at $70. Enter EPS = 5, Growth Rate = 5, Market Price = 70. Intrinsic value = 5 × (8.5 + 2×5) = 5 × 18.5 = $92.50. Margin of safety = (92.50 − 70) / 92.50 × 100 ≈ 24.32%. Verify: the stock trades about a quarter below its estimated intrinsic value — a meaningful discount. Example 2 — $3 EPS, 8% growth, trading at $50. Enter EPS = 3, Growth Rate = 8, Market Price = 50. Intrinsic value = 3 × (8.5 + 2×8) = 3 × 24.5 = $73.50. Margin of safety = (73.50 − 50) / 73.50 × 100 ≈ 31.97%. Verify: the higher growth assumption lifts intrinsic value, producing a larger ~32% margin of safety despite a lower share price.
Frequently asked questions
What is a good margin of safety?
Benjamin Graham generally sought a margin of safety of at least 20–30%, and many value investors prefer even larger discounts of 40–50% for riskier or harder-to-predict companies. The bigger the margin, the more room you have to be wrong about your intrinsic-value estimate and still avoid a loss. The appropriate threshold depends on how confident you are in your inputs and how stable the business is: a predictable, high-quality company justifies a smaller margin than a volatile, uncertain one. A negative or very small margin means little to no protection. The whole point is to build in a cushion against the inevitable errors in forecasting an uncertain future.
How reliable is Graham's intrinsic value formula?
Graham's formula, V = EPS × (8.5 + 2g), is a useful quick screen but a rough simplification that should not be used as a precise valuation. It is extremely sensitive to the growth rate g, so an optimistic growth assumption can dramatically inflate the intrinsic value and create a false margin of safety. Graham himself revised it to V = EPS × (8.5 + 2g) × 4.4 / Y, dividing by the current AAA corporate bond yield Y, because the original was calibrated to a low-rate era and overvalues stocks when interest rates are high. It also ignores debt, cash, cash flow, and business quality. Use conservative inputs and treat the result as one input among many, alongside discounted cash flow and qualitative analysis.
What growth rate should I use?
Use a conservative, sustainable long-term growth estimate rather than a recent peak or an analyst's optimistic projection, because the formula is highly sensitive to this input. A common approach is to use the expected average annual earnings growth over the next 7–10 years, often anchored to historical growth, industry trends, and a healthy dose of skepticism. Plugging in a high short-term growth rate is the most common way investors fool themselves into seeing a margin of safety that is not really there. When uncertain, err low — underestimating growth makes your intrinsic value, and therefore your buy threshold, more conservative. Always test how the result changes across a range of growth assumptions.
What is the difference between intrinsic value and market price?
Intrinsic value is your estimate of what a business is genuinely worth based on its fundamentals — earnings, growth, assets, and cash flow — while market price is simply what the stock currently trades for, set by supply and demand and often swayed by emotion. Value investing rests on the idea that these two can diverge: the market sometimes prices a stock well below or above its true worth. The margin of safety measures that gap. Graham personified the market as 'Mr. Market,' an erratic partner who offers different prices daily, allowing patient investors to buy when the price is irrationally low. The strategy is to act only when market price offers a sufficient discount to intrinsic value.
When should I NOT rely on this calculator?
Avoid it for companies with negative or erratic earnings, since the formula depends on a meaningful EPS and breaks down when earnings are unstable or negative. It is also unsuitable as a standalone valuation — it ignores debt, cash, free cash flow, dividends, cyclicality, and qualitative factors like competitive position and management quality. The classic formula can badly overvalue stocks in high-interest-rate environments unless you use the bond-yield-adjusted version. Do not use it for high-growth or speculative companies whose value rests on distant future cash flows the simple formula cannot capture. Treat it as a fast first-pass screen, then confirm with a full discounted-cash-flow analysis and fundamental research before investing.