What is generally expected to happen to perpetuity growth as a company matures?

As a company matures, the expectation is that its perpetuity growth will decline. This is mainly because mature companies typically grow at a slower rate compared to their earlier, high-growth stages. In the initial years, companies often experience rapid expansion due to factors such as market penetration, significant increases in customer acquisition, and overall market demand growth.

However, as they reach maturity, the market conditions change. Growth opportunities may become more limited as the company has already captured a substantial portion of the market. Additionally, the risks associated with mature companies can increase, causing growth forecasts to moderate. Factors like increased competition, market saturation, and the potential for economic fluctuations can also contribute to a more stable, yet lower, growth rate.

Understanding this trend is crucial for financial modeling and forecasting, as it impacts valuation models that incorporate perpetuity growth rates. A declining growth rate is often seen as a more realistic and conservative approach to estimating a mature company's long-term value, aligning with the principles of prudent financial analysis.