Stock Price - Variable Growth Model

This tool estimates a stock’s current fair value when dividends are expected to grow at different rates over multiple periods. It extends the traditional Gordon Growth Model by allowing for varying growth rates before reaching a constant long-term rate.

How It Works

The calculator projects future dividends for each year based on user-defined growth rates and discounts them back to the present using the chosen expected return (r). It then adds the terminal value (the value at the start of the constant-growth phase) to find the stock’s present value.

• Initial Dividend (D₀): The most recent dividend paid.
• Expected Return (r): The investor’s required rate of return.
• Growth Rates (g₁, g₂, ... gₙ): Different annual growth rates for specific periods.

Core Formulas

Each dividend is calculated as:
Dₜ = Dₜ₋₁ × (1 + gₜ)

The present value of dividends and the terminal price are then discounted using:
P₀ = Σ (Dₜ / (1 + r)ᵗ) + (Pₙ / (1 + r)ⁿ)

The model shows:

• Year-by-year dividend projections.
• Cash flows including future dividends and the final price.
• The total present value representing the current estimated stock price.

This model helps investors assess how different short-term and long-term growth expectations impact a stock’s value. Faster early growth leads to higher valuations, while slower growth or higher required returns reduce the current price estimate.