Marvell Technology is currently trading at $40.84 per share and has a Graham number of $11.1, which implies that it is 267.8% above its fair value. We calculate the Graham number as follows:
√(22.5 * 5 year average earnings per share * book value per share) = √(22.5 * 0.3 * 18.266) = 11.1
The Graham number is one of seven factors that Graham enumerates in Chapter 14 of The Intelligent Investor for determining whether a stock offers a margin of safety. Rather than use the Graham number by itself, its best to consider it alongside the following fundamental metrics:
Sales Revenue Should Be No Less Than $500 million
For Marvell Technology, average sales revenue over the last 4 years has been $4,012,511,000, so in the context of the Graham analysis the stock has impressive sales revenue. Originally the threshold was $100 million, but since the book was published in the 1970s it's necessary to adjust the figure for inflation.
Current Assets Should Be at Least Twice Current Liabilities
We calculate Marvell Technology's current ratio by dividing its total current assets of $3,281,100,000 by its total current liabilities of $2,386,700,000. Current assets refer to company assets that can be transferred into cash within one year, such as accounts receivable, inventory, and liquid financial instruments. Current liabilities, on the other hand, refer to those that will come due within one year. Marvell Technology’s current assets outweigh its current liabilities by a factor of 1.4 only.
The Company’s Long-term Debt Should Not Exceed its Net Current Assets
This means that its ratio of debt to net current assets should be 1 or less. Since Marvell Technology’s debt ratio is -1.1, the company has negative current asset / liability balance. We calculate Marvell Technology’s debt to net current assets ratio by dividing its total long term of debt of $3,907,700,000 by its current assets minus total liabilities of $6,884,900,000.
The Stock Should Have a Positive Level of Retained Earnings Over Several Years
Marvell Technology had positive retained earnings from 2021 to 2023 with an average of $1,572,780,333. Retained earnings are the sum of the current and previous reporting periods' net asset amounts, minus all dividend payments. It's a similar metric to free cash flow, with the difference that retained earnings are accounted for on an accrual basis.
There Should Be a Record of Uninterrupted Dividend Payments Over the Last 20 Years
Shareholders of Marvell Technology have received regular dividends since 2020. The company has returned an average dividend yield of 0.8% over the last five years.
A Minimum Increase of at Least One-third in Earnings per Share (EPS) Over the Past 10 Years
Marvell Technology's earnings per share shrank by -108.12% between 2020 and 2023, so it fails this element of the Graham test. Over this 4 period, reported earnings per shares declined from $2.34 to $-0.19.
Although it has positive retained earnings from 2021 to 2023 and an acceptable dividend record, Marvell Technology does not have the profile of a defensive stock according to Benjamin Graham's criteria because in addition to trading far above its fair value, it has:
- a negative current asset / liability balance
- decreasing earnings per share