The perpetuity growth rate (also called the terminal growth rate) is the constant rate at which a company's free cash flows are assumed to grow forever beyond the DCF forecast period in stock valuation.
Most analysts use a perpetuity growth rate of 2-3% in stock valuation, aligned with long-term nominal GDP growth. Using 2.5% for a US company is a common conservative assumption.
The perpetuity growth rate has an outsized impact on terminal value in stock valuation. A rate that is too high (above WACC) produces an infinite value — a mathematical impossibility that signals flawed assumptions. It must always be less than the discount rate.
MiniValuator uses the perpetuity growth rate in the Gordon Growth terminal value formula. The sensitivity heatmap varies this rate alongside the discount rate to show the range of possible stock valuations.
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