What advantage does the Gordon Growth Model have compared to the capital asset pricing model (CAPM)?

The Gordon Growth Model, also known as the Dividend Discount Model (DDM), provides a significant advantage in providing a straightforward and relatively accurate forecast of a stock's value when growth rates are stable. This model is based on the premise that a company’s dividends will grow at a constant rate indefinitely.

When the growth rates of dividends are stable, applying this model allows investors to calculate the present value of anticipated dividends easily, leading to a clear valuation of the investment. Its simplicity makes it particularly appealing for investors who are seeking to make quick evaluations without delving into complex calculations, which is often the case with other models like the capital asset pricing model (CAPM).

CAPM, while comprehensive and encompassing many economic factors, can be more complicated and reliant on numerous inputs, including market return, beta, and risk-free rate, making it less accessible for quick assessments in scenarios where growth rates are known and stable. Therefore, the Gordon Growth Model's straightforward approach stands out when considering stable growth scenarios.