Intrinsic Value Calculator
Estimate a stock's intrinsic value by discounting a stable dividend at the required return minus growth.
Input Data
Results
At a glance:Intrinsic value is the stock's 'true worth' computed by the Gordon Growth Model (constant perpetual dividend growth): intrinsic value P = D₁ ÷ (r − g), where D₁ is next year's dividend, r the required return, g the perpetual dividend growth rate. When price < intrinsic value → possibly undervalued (buy with margin); price > intrinsic value → possibly overvalued. It is the cornerstone of value investing (margin of safety), but assumes perpetual stable growth (g < r) and is highly sensitive to r and g — small changes swing the result a lot; use as a reference with other methods, not a signal. Educational/estimation only.
Formula
D₁ = D₀ × (1 + g).
Intrinsic value P = D₁ ÷ (r − g) (requires r > g).
$$P = \dfrac{D_0(1+g)}{r - g}$$$$(\text{with } r > g)$$How to Use
- Enter the current annual dividend per share (D0).
- Enter the assumed growth rate (g) and required return (r).
- View the intrinsic value and next year's dividend instantly.
D0 = HK$2; intrinsic value sensitivity to g and r
| Growth g | Required r | Intrinsic value | Note |
|---|---|---|---|
| 2% | 8% | HK$34.67 | Standard |
| 3% | 8% | HK$41.20 | Higher growth, value up |
| 3% | 10% | HK$27.47 | Higher discount, value down |
| 5% | 8% | HK$68.67 | Growth near r, value explodes |
Intrinsic value is very sensitive to r and g: rising g or falling r raises value sharply; if g approaches r, value tends to infinity (model breaks). Always keep r > g.
Case Studies
Case 1: Value investing with a margin of safety
A blue-chip pays D0 HK$2, expected dividend growth 3%, required return 8%. Intrinsic value = 2×1.03 ÷ (0.08−0.03) = HK$41.2.
If the market price is HK$35, below intrinsic value → possibly undervalued, offering a margin of safety worth buying; if the price is HK$50, above intrinsic value → possibly overvalued, be cautious.
This is the core of value investing: estimate intrinsic value, buy below it with a margin, sell above. But intrinsic value itself rests on the assumed r and g, which you must justify.
Case 2: Sensitivity — small changes, large swings
Same D0 = HK$2, g 3%: if required return is 8%, intrinsic value ≈ HK$41.2; if the market rate rises and you demand 10%, value drops to 2×1.03 ÷ (0.10−0.03) = HK$27.47 — about −33%.
Conversely, if growth is revised from 3% to 5% (r 8%), value jumps to 2×1.05 ÷ (0.08−0.05) = HK$70, about +70%.
Lesson: intrinsic value is highly model-sensitive — small r/g shifts move the result by tens of percent. So (1) use conservative, well-grounded assumptions; (2) cross-check with other valuation methods (DCF, P/E, comparables); (3) insist on a margin of safety rather than trusting a single point estimate. Pair with the DCF and dividend-discount calculators.
FAQ
What does intrinsic value above/below price mean?
Price < intrinsic value → possibly undervalued, a margin of safety, worth considering; price > intrinsic value → possibly overvalued, be cautious. But intrinsic value is an estimate under assumptions, not a precise market target.
Why does the model require r > g?
If r ≤ g the denominator is zero or negative and the perpetuity formula breaks (value tends to infinity). That is unrealistic — a dividend growing forever faster than the required return is impossible. Always keep r > g.
Why is intrinsic value so sensitive?
Because r − g is in the denominator; since r and g are close, small changes in either swing the value a lot (g near r makes value explode). Therefore use conservative, defensible assumptions and cross-check with other methods.
Why must r be greater than g, or the model breaks?
The Gordon model discounts a perpetually growing dividend: value = D₁ ÷ (r − g). The denominator r − g is the 'excess discount rate'. If r > g (normal, reasonable) the excess is positive and the value finite — the growth is partially offset by discounting. If r = g the denominator is 0 and value tends to infinity — impossible (a dividend growing forever at the exact required return cannot be worth infinite money). If r < g the denominator is negative (absurd) — a dividend growing forever faster than the required return is mathematically and economically impossible. So the strict precondition is r > g; when estimating, set r a few points above g (e.g. g 3%, r 7–9%) or the result is meaningless. When g is near r, even a 1-point shift changes value hugely — watch the input.
Can intrinsic value be applied to non-dividend stocks?
The basic Gordon model needs a stable, perpetual dividend, so it suits dividend-paying blue-chips (banks, utilities, REITs), not suitable for no-dividend growth stocks (early-stage tech). For non-dividend stocks use DCF (free cash flow), P/E or comparables, or a two-stage dividend model (high growth then stable). This calculator is the single-stage model; for changing-growth firms use other tools. Educational/estimation only.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.