Optimization Study of the Improvement on DDM Model Based on Poly Union Group Corporation

Abstract

With the global economic develops, stock market has aroused the attention of investors, which enables them to invest capital in it. However, the DDM that investors use has various disadvantages, which have been misleading them to get wrong conclusions. Thus, this paper will have further analysis and research on the weakness of the DDM and propose elaborate improvement. The paper uses the GGM model to value the stock price based on the actual dividend paid by the company and for the simplicity of calculation. The research shows that the DDM ignores the growth of the company and the risk factor. Furthermore, the DDM isn’t suitable for stocks whose growth of dividend is higher than the discount rate. The PEG model can give accurate valuations for stocks that have zero dividend yields or very trivial ones. In general, the PEG model can improve the DDM model. But still, the PEG model doesn’t take the cash amount on the balance sheet into account. Company with a certain amount of cashflow might be more valuable for investors. In the future, something should be added to modify the PEG model.