The Gordon Growth Model – otherwise described as the dividend discount model – is a stock valuation method that calculates a stock’s intrinsic value. Therefore, this method disregards current market conditions. Investors can then compare companies against other industries using this simplified model.
The Gordon Growth Model assumes the following conditions:
– The company’s business model is stable; i.e. there are no significant changes in its operations.
– The company grows at a constant, unchanging rate.
– The company has stable financial leverage.
– The company’s free cash flow is paid as dividends.