There is the possibility of loss and all investment involves risk including the loss of principal.Īny projections, forecasts and estimates contained in this document are necessarily speculative in nature and are based upon certain assumptions. Past performance of these strategies is not necessarily indicative of future results. An investment in any strategy, including the strategy described herein, involves a high degree of risk. This letter is not an offer to sell securities of any investment fund or a solicitation of offers to buy any such securities. We hope this newsletter is helpful to you in your investment journey. High growth endurance and predictability of revenues are positive indicators that typically lead to higher price multiples and higher enterprise values for companies. In a post-pandemic investment world, we believe that revenue growth endurance is a useful metric to differentiate between companies that experienced a one-time revenue surge or collapse in 2020 revenues versus sustaining revenue growth rates in 2021 and beyond.Ī revenue growth endurance score of less than 100% illustrates a decaying growth rate, while a growth repeatability score greater than 100% shows acceleration in revenue growth.īest-in-class public companies typically have revenue growth endurance scores that exceed 80% with high revenue growth rates. Revenue growth endurance can be defined mathematically as the Current Year’s Revenue Growth Rate / Last Year’s Revenue Growth Rate. Revenue growth endurance helps answer the question, “How consistent, durable, and sustainable is a company’s revenue growth?” In an effort to visualize the tradeoff between revenue growth rate and revenue growth endurance, the following 2x2 matrix can be helpful for investors in categorizing companies. Additionally, companies with significant fluctuations in revenue growth rates demonstrate poor revenue growth endurance, often due to either spiky, cyclical, commodity-linked, or seasonal revenues. increasing revenue growth rate), while a revenue growth endurance score below 100% implies a slowing revenue growth rate. A revenue growth endurance score above 100% indicates that revenue growth is accelerating (i.e. Essentially, revenue growth endurance measures the consistency, repeatability, durability, and sustainability of revenue growth rates. For example, if a company’s revenues grew 50% last year and is expected to grow revenues by 40% this year, then the implied revenue growth endurance score is 80% (40/50 = 80%). Revenue Growth Endurance : This number is expressed as a percentage and displays the ratio of the current year’s revenue growth rate to last year’s revenue growth rate. For example, if a company earned $100 million in revenue 2 years ago and earned $130 million in revenue last year, that would imply a 30% revenue growth rate ($130 million / $100 million - 1 = 30%). A positive revenue growth rate indicates that revenues have increased, while a negative revenue growth rate implies that revenues have decreased over time. Revenue Growth Rate : This number is expressed as a percentage and demonstrates the rate of change in revenues across 2 time periods. Revenue : This number is the amount of money generated from selling products and services. Before we get started with this blog post, let’s please define 3 terms: Today’s blog post from Drawing Capital focuses on the metric titled “ revenue growth endurance ”.
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