Ryan Mahony's avatar
$17.3m follower assets
No Revenue Growth
If a business is growing revenue at 5% but growing earnings at 20% it is important to ask how this is happening and is it sustainable. The business is likely doing one or more of the following:

1 - Squeezing employees and asking them to perform more work for the same pay
2 - Squeezing suppliers/manufacturers and likely using cheaper materials or inventory
3 - Squeezing customers providing less value for the same or more money

I do not believe either of these are sustainable and often lead to toxic work culture. In sum, you need to grow revenue in order to sustainably grow earnings.
Young Money Capital's avatar
Or there could be leverage in the business like many technology companies. A good example of this is Google Search where almost all incremental revenue is dropping down to the bottom line.
Kenny Groom's avatar
Strong customer success practices also allow for growing the revenue for existing customers more efficiently with minimized additional costs to the business. Think $AAPL Music and it’s placement in the buyer journey for Apple product fans.

Another circumstance occurred during pandemic where SaaS based businesses saw an increase in revenue with decrease in expenses such as business travel and facilities costs.