I came across the Gordon Growth model and, for curiosity, I tried to calculate the value of a stock.
According to Damodoran:
Value of Equity= Dividends per share * (1 + Expected Growth Rate in Earnings and Dividends)/(Cost of Equity - Expected Growth Rate in Earnings and Dividends)
For this example, I take into consideration ED (Corporate Edison).
ROE = 8%
EPS = 3.8$
Dividends Pay-ratio: 0.72
Dividends per share = EPSDividends Pay-ratio = 3.80.78 = 2.95
Expected Growth Rate in Earnings and Dividends: ROE*(1-payout) = 8*0.28 = 2.24
Cost of equity:4.02
Value of Equity = 2.95 * (1 + 0.028)/ (0.042 - .028) = 216
The value I get is completely out of any logic. I suppose there is an error (DPS seems off).
Any help?
best regards