Stock Valuation Calculator
Estimate a stock's intrinsic value by blending the Gordon Growth Model (DDM) with an earnings-based P/E approach. Use it when deciding whether a dividend-paying stock is overvalued or undervalued before buying or selling.
Last updated: May 2026
About this calculator
This calculator blends two classic valuation methods. The Dividend Discount Model (DDM) component uses the Gordon Growth Model: DDM Value = D₁ / (r − g), where D₁ = currentDividend × (1 + g/100) is next year's dividend, r is the required rate of return, and g is the expected dividend growth rate. The earnings-based component is simply EPS × P/E ratio, reflecting what the market pays per dollar of earnings in the same industry. The two estimates are weighted 60% DDM and 40% P/E: Intrinsic Value = (DDM Value × 0.6) + (EPS × P/E × 0.4). Comparing this blended value to the current market price tells you whether the stock appears cheap or expensive relative to fundamentals.
How to use
Suppose a stock pays a $2.00 annual dividend, growing at 4% per year. Your required return is 9%, EPS is $5.00, and the industry P/E is 18×. D₁ = $2.00 × 1.04 = $2.08. DDM Value = $2.08 / (0.09 − 0.04) = $2.08 / 0.05 = $41.60. P/E Value = $5.00 × 18 = $90.00. Blended Intrinsic Value = ($41.60 × 0.6) + ($90.00 × 0.4) = $24.96 + $36.00 = $60.96. If the stock trades below $60.96, it may be undervalued.
Frequently asked questions
What is the Gordon Growth Model and when is it valid for stock valuation?
The Gordon Growth Model (GGM) values a stock as the present value of all future dividends growing at a constant rate: Value = D₁ / (r − g). It is most valid for mature, dividend-paying companies with stable, predictable growth. The model breaks down when the expected growth rate g approaches or exceeds the required return r, or when a company pays no dividend at all.
Why does this calculator weight DDM at 60% and P/E at 40%?
The 60/40 weighting reflects the view that for dividend-paying stocks, cash-flow fundamentals (captured by the DDM) are the primary driver of intrinsic value, while market sentiment and peer comparisons (captured by the P/E multiple) play a secondary role. Different analysts use different weightings depending on sector and personal methodology. The blended approach reduces reliance on any single model's assumptions.
How do I choose the right required rate of return for a stock?
The required rate of return is the minimum annual return you need to justify the investment's risk. A common approach is to use the Capital Asset Pricing Model: r = risk-free rate + β × (market premium), where β measures the stock's volatility relative to the market. For a quick estimate, many investors use 8–12% for large-cap stocks and higher rates for riskier small-cap or growth stocks.