V01: Revenue growth — how to analyse it

Growth is the engine. Without growth the company dies slowly — it loses market share, attracts no capital, and cannot reinvest. Strong growth (>15%) signals that the company is doing something right that the market likes.

This is V01 — Revenue growth in the AKM1 model: one of the 20 variables that together determine whether a company is an institutional quality stock or a collection of stories. In this article you get the variable explained, how to compute it yourself, and how three of history's greatest investors would have interpreted it.

Why the variable exists

Revenue growth as a concept is as old as accounting itself — the double-entry bookkeeping of Luca Pacioli, 1494. Merchants and bankers in Renaissance Venice compared annual revenue to assess the health of their businesses. It was only with the modern stock market (Amsterdam 1602, London 1698) that revenue growth became an investment criterion. Early investors in the VOC (Dutch East India Company) analysed annual cargo revenue from the East Indies to value stocks.

Why growth is the engine

The foundations of growth Growth is the only force that can lift a company from obscure to iconic. When a company grows faster than the market it wins market share, attracts talent, can reinvest in R&D, and builds a spiral that reinforces itself. Without growth the company dies slowly — it loses market share, cannot pay market-level wages, and is forced into structural rationalisations that erode the future. Revenue growth is the purest measure of this: how much more did the company sell this year compared with last year? It is the first indicator in AKM1 because everything else — margins, cash flow, valuation — must be interpreted in the light of the growth rate. A company with 5% margin and 30% growth is often more valuable than a company with 20% margin and 0% growth, because the former has a future to capitalise on. 💡 INSIGHT Growth is not just a number — it is a direction. A company that grows 10% per year doubles its revenue in 7,2 years (the rule of 72).

Computing revenue growth in practice

Find the right number in the annual report Always start in the income statement in the annual report. The first line is 'Net revenue' — that is your entry point. Note that some companies report 'Operating revenue', which includes other operating income — those should not be included. Use net revenue, that is, income from the company's core operations. Fetch the number for both the current year and the previous year (both stand in the same column). E.g. for Atlas Copco 2023: net revenue 2023 = 172 426 MSEK, net revenue 2022 = 153 708 MSEK. Calculation: (172 426 − 153 708) / 153 708 × 100 = 12,2% revenue growth. This gives score 3 (5-15% growth) according to the AKM1 scale. If you want quarterly growth, fetch it from the interim report and compare with the corresponding quarter of the previous year — never with the previous quarter (seasonal effects).

The dark side of growth — traps and illusions

Growth that destroys value High growth is not always good. A company can grow 40% per year and still destroy the shareholders' value if 1) the margins are negative, 2) the customer acquisition cost (CAC) exceeds the lifetime value (LTV), or 3) the company burns capital faster than it creates revenue. This is the classic 'growth at all costs' trap that hit many tech companies in 2020-2022. Sinch grew revenue 50%+ annually 2018-2021 but operating cash flow was weak, liabilities piled up, and when growth decelerated in 2022 the stock collapsed from 600 kr to 30 kr — 95% value destruction. The lesson: growth must be profitable or have a clear path to profitability.

Three perspectives on revenue growth

Peter Lynch: Lynch loved 'story stocks' with strong growth. In 'One Up On Wall Street' (1989) he argued that if you can describe in one sentence why a company grows ('they sell coffee cheaper'), then it is a good growth story. He warned against 'di-worsification' — growth through acquisitions in unfamiliar industries. Lynch's 'fast grower' criterion: 20-25% annual growth over 5+ years.

Benjamin Graham: Graham (Security Analysis, 1934) was sceptical of growth as a valuation basis. He argued that growth is unpredictable and that the market overpays for it. 'Growth is a forecast, not a fact.' He preferred to value companies on current revenue with a margin of safety.

AK1's interpretation: AKM1 weight 8% — the highest weight. We consider growth the context that interprets all other variables. A P/E of 40 is unreasonable at 0% growth but reasonable at 35% growth. AKM1 breaks growth down into volume vs price, organic vs acquired — not just a number. We combine V01 with V02 (ARR) and V03 (diversification) to assess the quality of growth.

Go deeper

From measuring growth to predicting it

Want to practise with worked examples, chapter by chapter? The course Revenue growth (V01) contains 6 chapters, Lynch and Graham perspectives and how AK1 uses the variable in the wave matrix. See also the complete guide to Swedish stock analysis for how all 20 variables fit together.

FAQ

Vad är försäljningstillväxt?

Försäljningstillväxt mäter hur mycket ett bolags nettoomsättning har ökat jämfört med föregående år, uttryckt i procent. Det är den mest grundläggande tillväxtindikatorn i fundamentalanalysen och den första variabeln (V01) i AKM1-modellen — den sätter ramen för hur alla andra mått, som marginaler och värderingsmultiplar, ska tolkas.

Hur räknar man ut försäljningstillväxt?

Formeln är: (nettoomsättning i år − nettoomsättning föregående år) / nettoomsättning föregående år × 100. Hämta båda siffrorna från första raden i resultaträkningen i årsredovisningen. I kursen Försäljningstillväxt (V01) går vi igenom räkneexempel steg för steg.

Vad är en bra försäljningstillväxt?

In the AKM1 model's education scale, growth above 15% per year is usually seen as strong, 5–15% as moderate, and negative growth as a warning flag. The level must always be read in context: 10% in a mature industry can be excellent, while 10% in a fast-growing niche can be weak. The method is to compare with industry peers and the company's own history.

Är hög försäljningstillväxt alltid positivt?

Nej — det är ett vanligt missförstånd. Tillväxt som inte är lönsam kan förstöra värde om marginalerna är negativa eller om kostnaden för att skaffa kunder överstiger vad de genererar. Därför kombinerar AKM1-modellen försäljningstillväxt med lönsamhets- och kassaflödesvariabler för att bedöma tillväxtens kvalitet, inte bara dess takt.

This is educational financial analysis, not investment advice.