Growth Scoring – How Fast the Company is Growing

The Growth label (Declining / Stable / Growing) shows whether the business is expanding, stagnating, or shrinking. We track growth over several years back to capture the real trend, not just a one-time fluctuation.

Why Growth Matters

Growth is one of the main drivers of investment returns. A growing company:

• Increases value – Higher revenue and profits usually lead to higher stock prices
• Strengthens competitive position – A growing company can invest in development, marketing, and expansion
• Attracts investors – Growth companies attract capital, which enables further growth

On the other hand, not all growth is quality growth. A company can grow at the expense of profitability or through leverage. That's why we track growth at multiple levels.

What We Evaluate

Instead of looking at a single year, we use Compound Annual Growth Rate (CAGR) over several years. CAGR smooths year-over-year fluctuations and shows the real growth trend.

Revenue Growth – Basic indicator of whether the company is growing in volume. Growing revenue means the company is acquiring new customers or selling more to existing ones.

Earnings Per Share (EPS) Growth – Key metric for shareholders. Shows whether revenue growth also leads to growth in profit per share. A company may grow revenue, but if it dilutes shares or margins decline, shareholders don't benefit.

Free Cash Flow (FCF) Growth – Verifies that growth isn't just "on paper." Accounting profit can be adjusted in various ways, but actual cash the company generates doesn't lie. We don't use this metric for the financial sector (FCF doesn't make sense there).

Book Value Growth – Especially for banks and insurance companies, the growth dynamics of equity is also important. Shows how quickly the company is building value for shareholders.

Sector Differences

Growth expectations vary dramatically by sector:

• Technology – We expect high growth; these companies operate in rapidly growing markets
• Utilities and defensive sectors – Low but stable growth is perfectly fine. These companies often pay dividends instead of reinvesting in expansion
• Cyclical sectors (energy, materials) – Growth fluctuates with the economic cycle, so evaluation is more tolerant of fluctuations
• Financial sector – Book value growth is key; we don't evaluate FCF

Scoring accounts for these differences – "Stable" for utilities isn't a worse rating than "Growing" for tech. Each sector has its own measure.

How to Interpret Results

What to Watch For

• Growth at any cost – A company may grow through debt-financed acquisitions or share dilution. That's why we track EPS, not just total profits.
• One-time events – A large contract or division sale can distort growth. CAGR over multiple years partially smooths these fluctuations.
• Growth quality – Ideal is growth accompanied by stable or rising margins. Growth at the expense of declining profitability is less valuable.

Metrics Considered