MIND THE MULTIPLIER: RECALIBRATING THE GROWTH FACTOR IN VALUING PUBLIC COMPANIES
Abstract
This article revisits Benjamin Graham’s intrinsic‑value rule, adapting it to the post‑crisis investment landscape. It replaces the original fixed constants with dynamic anchors linked to prevailing bond yields and market equity‑risk premia, then recalibrates the growth multiplier through contemporary cross‑section data. The resulting formula keeps Graham’s hallmark simplicity, yet reflects today’s low‑rate environment, wider dispersion of corporate growth paths and faster information cycles. Empirical tests show the updated model distinguishes over‑ and undervalued S&P 500 shares more accurately than the classic version, while remaining transparent enough for rapid screening. The study therefore offers investors a concise, data‑aware benchmark for spotting valuation errors and lays groundwork for future sector‑specific or international extensions of Graham’s approach.
References
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Graham B., Dodd D. L., Cottle S. Security analysis: Principles and technique. – 4th ed. New York : McGraw‑Hill, 1962. 776 p.
Cragg J. G., Malkiel B. G. The consensus and accuracy of some predictions of the growth of corporate earnings. The Journal of Finance. 1968. Т. 23, № 1. P. 67–84. DOI: https://doi.org/10.1111/j.1540-6261.1968.tb02998.x
Malkiel B. G., Cragg J. G. Expectations and the structure of share prices. American Economic Review. 1970. Vol. 60, No. 4. P. 601–617. DOI: https://doi.org/10.2307/1883016
Harris L., Marston F. C. Estimating shareholder expected returns using analysts’ forecasts. Financial Management. 1992. Vol. 21, № 2. P. 63–70. DOI: https://doi.org/10.2307/3666007
Implied equity risk premiums–United States (monthly series, September 2008 – present). Stern School of Business, New York University. URL: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histimpl.html (дата звернення: 03.07.2025)
Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis. Federal Reserve Economic Data | FRED | St. Louis Fed. URL: https://fred.stlouisfed.org/series/DGS10 (дата звернення: 04.07.2025).
Moody's Seasoned Aaa Corporate Bond Yield. Federal Reserve Economic Data | FRED | St. Louis Fed. URL: https://fred.stlouisfed.org/series/DAAA (дата звернення: 04.07.2025).
Graham B. The future of common stocks. Financial Analysts Journal. 1974. Vol. 30, № 5. P. 20–30. DOI: https://doi.org/2469/faj.v30.n5.20
Damodaran A. The implied equity risk premium, 1960‑2024: Lessons from 65 years of capital market history : Working paper. – New York University Stern School of Business, 2024. DOI: https://doi.org/10.2139/ssrn.4758326
Fama E. F., French K. R. Forecasting profitability and earnings. Journal of Business. 2000. Vol. 73, № 2. P. 161–175. DOI: https://doi.org/10.1086/209638
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