Perpetuity Growth Rate
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.
Example
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.
Why It Matters
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.
How MiniValuator Uses Perpetuity Growth Rate
MiniValuator uses the perpetuity growth rate in the Gordon Growth terminal value formula. When this terminal method is selected, the sensitivity heatmap varies this rate against the FCF growth rate while holding the discount rate fixed, showing the range of possible stock valuations.
See It in Action
- How the DCF model calculates intrinsic value
- Financial Services sector intrinsic value analysis
- Energy sector intrinsic value analysis
Related Terms
- Terminal Value — Terminal value represents the present value of all future cash flows beyond the explicit forecast pe...
- Discounted Cash Flow (DCF) — Discounted Cash Flow (DCF) is a fundamental stock valuation methodology that estimates the present v...
- Weighted Average Cost of Capital (WACC) — WACC is the blended rate of return that a company must earn on its invested capital to satisfy all o...
Ready to apply this concept? Try the MiniValuator DCF Calculator — calculate intrinsic value for any US stock in under 60 seconds.