Growing faster has twice as much impact on share price as improving margins

Companies with earnings before interest, taxes, and amortization (EBITA) margins below 10 percent and growth rates below 20 percent have seen their market capitalization grow 14 percentage points more slowly than the market average. The data suggest that they can drive nearly twice as much value by pushing growth rates over 20 percent as they can by pushing EBITA margins above 10 percent. Companies with EBITA already in excess of 10 percent but top-line growth below 20 percent achieve a similar market-capitalization improvement by boosting their top-line growth above 20 percent.

There is, however, one notable exception to the idea that growth is all-important. When companies reach $4 billion in revenues or more margins become more important to value multiples.

SaaS & Tech Growth Strategy