Revenue CAGR
Definition
Revenue CAGR (Compound Annual Growth Rate) measures the year-over-year growth rate of a company's revenue over a specified period, assuming the growth compounds each year. It smooths out volatility to show the underlying growth trend.
(Ending Revenue ÷ Beginning Revenue) ^ (1 ÷ Number of Years) − 1How to Interpret Revenue CAGR
A Revenue CAGR above 10% over 5+ years is strong for most businesses, indicating consistent demand and market share gains. Above 15% is exceptional and usually reflects a company in a high-growth industry or gaining significant market share. Below 3% suggests maturity or competitive pressure. Always check whether growth came from volume, price, or acquisitions — acquired growth is less valuable.
Why It Matters for Investors
Revenue growth is the foundation of compounding. Without growing revenue, a company cannot grow earnings over the long term. We look for companies with sustainable organic revenue growth because it signals that the business is expanding its addressable market, gaining share, or raising prices — all signs of a quality business.
Frequently Asked Questions
What is a good Revenue CAGR?
For most quality companies, a 5-year Revenue CAGR of 8-15% is excellent. Above 15% is exceptional but may attract competition. Below 5% suggests a mature or challenged business.
Organic vs acquired growth — what is the difference?
Organic growth comes from selling more products or raising prices. Acquired growth comes from buying other companies. Organic growth is more valuable because it reflects real demand and does not require spending cash on acquisitions.
Can a company have high revenue growth and still be a bad investment?
Yes. Growth that requires constant capital, destroys margins, or comes from unsustainable sources can destroy value. Always pair revenue growth with ROIC and margin analysis.
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