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Is it reasonable to think that a constant growth stock could have constant growth rate>required rate...

Is it reasonable to think that a constant growth stock could have constant growth rate>required rate of return? Why or why not?

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Answer #1

No. It's not possible for a stock to have higher constant growth rate than the required rate of return. The reason is pretty simple. When the required rate of return is lower, the stock will be under-priced and therefore investors in the market would be attracted towards the stock and will keep on purchasing the stock with increased prices, until the stock price reaches at par with the required rate of return. So, for a short-span of time, it is possible to have higher growth rate than required rate of return, but it can't hold true with constant growth rate.

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