A lot of investors like to rely on the PEG ratio when estimating a company’s valuation. It’s a useful tool—up to a point. The challenge lies in the “G” — the growth rate.
Growth, by nature, is subjective. Predicting whether a company’s current earnings can sustain or accelerate in the future is far from straightforward.
A startup, for instance, might show high growth because it’s funneling profits into aggressive marketing to capture market share. A mature company, on the other hand, may be heavily investing in R&D to find its next growth driver. And some established firms eventually hit a ceiling where generating efficient, incremental growth becomes increasingly difficult. Countless factors—market saturation, competition, regulation, technological shifts—can influence a company’s growth prospects.
At DollarClarity, we prefer to keep things simple and grounded. Instead of chasing projections or hype, we focus on revenue as our key gauge for future growth potential.
As a conservative analysis team, we leave inflated expectations at the door. We assess growth rates based on performance before temporary market hypes—such as the recent AI frenzy—distort valuations. This helps us arrive at valuations that are intrinsically realistic and anchored in fundamentals.
Because no matter how a company manages its expenses or spins its story, it can’t escape the truth reflected in its sales and revenue. If revenue shows signs of decline, no amount of cost-cutting or financial engineering can mask that underlying weakness.
At the end of the day, revenue tells the real story.