Stock Price - Constant Growth Model

This tool estimates the fair value of a stock assuming its dividends grow at a constant rate. It is based on the Gordon Growth (Dividend Discount) Model, a standard approach in equity valuation.

Inputs

You enter three main variables:

• Last Dividend (D₀): The dividend most recently paid by the company.
• Expected Return (r): Your required rate of return for investing in the stock.
• Growth Rate (g): The constant rate at which dividends are expected to grow each year.

Core Formula

The model calculates today’s stock price (P₀) using:
P₀ = D₀ × (1 + g) / (r − g)

Here, D₀ × (1 + g) is the next expected dividend (D₁), and (r − g) adjusts this cash flow for the required return and growth. The result is the theoretical price an investor should be willing to pay, given those assumptions.

The calculator returns the implied stock price based on your inputs. This helps you compare:

• Model price vs. current market price.
• Whether the stock appears overvalued or undervalued under your assumptions.

A simulation section varies the expected return (r) while holding dividends and growth constant. For each value of r, the sheet recalculates the stock price using the same formula above.

This allows you to see how sensitive the valuation is to changes in required return: as r increases, the calculated price falls; as r decreases, the price rises.

Adjust D₀, r, and g to reflect your view of the company. Then review both the main stock price result and the simulation table to understand how different return and growth assumptions affect the stock’s theoretical value.