These investors are looking for growth potential, so what the Rule of 40 is just revenue growth combined with margins.
These investors are looking for growth potential, so what the Rule of 40 is just revenue growth combined with margins. A company with 45% revenue growth, and negative 1% margins, would clear the Rule of 40, just as a company with 20% revenue growth and 20% margins would. A high-margin business with little revenue growth probably would not.
Stanley and the team went through Nasdaq large-cap companies that have most regularly beaten that hurdle over the last 25 years. They said that’s no indication of the likelihood these companies will continue to surpass those hurdles.
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