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Revisiting the Gordon-Shapiro Model: How the Potential Payback Period (PPP) Refines and Operationalizes a Foundational Framework in Stock Valuation’s

by Rainsy Sam

Posted: May 9, 2025
Server: Preprints.org
DOI: 10.20944/preprints202505.0656.v1

This paper revisits the Gordon-Shapiro model, a foundational dividend-discount framework, by addressing its limitations in modern financial analysis—particularly its assumption of perpetual dividend growth and its instability when the growth rate approaches the discount rate. Introducing the Potential Payback Period (PPP), we offer a time-based, earnings-driven alternative that remains robust even for high-growth, non-dividend-paying companies. The PPP enables the calculation of two practical return metrics—SIRR and SIRRIPA—which are directly comparable to bond yields. This refinement allows for more consistent, cross-asset valuation and forward-looking portfolio construction.

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