What it is
Revenue growth is the year-over-year percentage change in a company's top-line sales:
Revenue Growth % = (Current Period Revenue ÷ Prior Period Revenue − 1) × 100
Several flavors:
- YoY (year-over-year): Latest 12 months vs the prior 12 months. Smooths out quarterly seasonality.
- TTM YoY (trailing-twelve-month YoY): What we use. Sums the last 4 reported quarters and compares to the prior 4 — captures the most recent quarter's contribution without giving it disproportionate weight.
- Sequential (QoQ): Quarter vs the immediately prior quarter. Reveals momentum changes faster but is noisier and seasonally distorted.
- Constant currency: Strips out FX moves so you see organic growth. A US-listed multinational reporting 5% growth on a strong dollar might be 10% constant-currency — and that's the rate that actually matches what management is doing.
What "good" looks like
The "right" rate depends entirely on the business model:
- Mature consumer staples: 2–5% YoY is healthy. Procter & Gamble, Coca-Cola, McDonald's all live here. The market doesn't ask for more.
- Industrials, financials: 3–8% in expansion phases.
- Mature tech (Microsoft, Apple): 5–15%. Below 5% raises the question of whether the moat is widening or the business is mature.
- Growth-stage tech: 20–50%. Below 20% in this band raises the question of whether growth is decelerating into maturity (typically a multiple-compression event).
- Hypergrowth / pre-scale: 50%+ is achievable but rarely sustainable beyond a few years. The math gets harder as the base grows.
- Negative growth: A signal worth understanding. Cyclical downturn (acceptable, recoverable)? Lost market share (existential)? Pricing collapse (sometimes structural)? Discount the reason, not just the number.
Why it matters
Revenue is the top of the funnel. Every metric below it — gross profit, operating income, EPS, FCF — flows from sales. A business growing revenue 20% per year has a structural tailwind that operating leverage can amplify into much higher earnings growth. A business shrinking revenue has the inverse problem: fixed-cost businesses (software, capital-intensive industrials) see their earnings drop multiple times faster than their revenue.
Three other reasons it dominates the growth side of our scoring:
- It catches market share dynamics. Two companies in the same sector growing at different rates are telling you something about competitive positioning. The fast-grower is taking share from the slow-grower, or expanding the market while the slow-grower stagnates.
- It feeds the PEG ratio. For names without sell-side EPS coverage, we compute a "proxy PEG" using revenue growth as the denominator. A business with no analyst coverage isn't necessarily a worse business — the proxy lets us evaluate it on the same footing as covered names.
- It's the cleanest input to a DCF. Forecasting revenue is hard; forecasting EPS through a margin cycle on top of that revenue is much harder. The first stage of every credible DCF is a revenue projection.
Common gotchas
- Acquisitions inflate organic growth. A company that bought a $500M-revenue business will show a step-function jump in revenue. The next year, that growth comparison turns into a tough comp. Look at organic (ex-acquisition) growth where management discloses it.
- FX swings. A US-listed company with European subsidiaries earns in euros. Translating that into reported USD revenue means a strong dollar drags reported growth lower (and a weak dollar inflates it). Look at constant-currency growth to see the underlying business.
- Revenue recognition policy changes. ASC 606 (US GAAP) changed how multi-year subscription revenue is recognized. Companies that bridged the change had multi-quarter optical headwinds or tailwinds that weren't reflective of underlying demand.
- "Adjusted" or "organic" revenue. Some companies report multiple revenue lines — gross sales vs. net sales (after rebates), bookings vs. revenue. Pick the one that maps to GAAP and stick to it. Mixing GAAP and adjusted across companies makes growth rates incomparable.
- TTM trailing biases. TTM YoY treats the latest 12 months equally — but the most recent quarter is the most informative. If revenue growth accelerated from 8% to 18% in the latest quarter, TTM YoY might still show 12%. Pair TTM with the latest reported quarter's standalone growth.
How we use it
Revenue growth is one of the five primary grades on every row card. Bands (rough): above 20% = A, 10–20% = A-/B+, 5–10% = B, 0–5% = C+, negative = D/F. The "hypergrowth premium" score adjustment lifts the score for names growing >30% with a real moat — that combination is rare and historically outperforms.
We compute revenue growth from TTM YoY using single-quarter values backed out from YTD-accumulated 10-Q filings (because SEC quarterly cash flow statements report YTD, not single-Q). The "TTM YoY" tag on the metric card means we computed it ourselves; "reported" means we fell back to Yahoo's pre-computed figure when our single-Q reconstruction had a gap.
Bottom line
Top-line growth is the fuel for everything else. A business that can't grow revenue is a business with a margin problem one bad quarter away from a multiple-compression problem. Look at TTM YoY first, latest quarter second, and always cross-reference against the sector and the company's own historical trajectory. Reading "growth" requires the context of what kind of business you're underwriting.