What Is Baby Gordon?
Baby Gordon is a simplified or introductory reference to the Gordon Growth Model, a finance framework used to estimate the intrinsic value of a stock based on a series of future dividends that grow at a constant rate.
How the Model Works
The model calculates present value by dividing the expected next dividend by the difference between the required rate of return and the perpetual growth rate. It assumes stable, long-term dividend growth and is often taught as a foundational valuation tool.
Key Uses and Limitations
Analysts use the model for quick, high-level equity valuation and to compare dividend-paying stocks. It works best for mature companies with predictable dividends. It is less reliable for firms with irregular payouts or high growth, and small changes in inputs can significantly alter results.
Where to Learn More
For a detailed explanation of the Gordon Growth Model and its assumptions, see the Investopedia overview of the Gordon Growth Model.
