A SaaS company grows revenue at 35% but has a -10% profit margin. What is its Rule of 40 score?

Rule of 40 = revenue growth % + profit margin % = 35 + (-10) = 25. Below 40 — the company is growing fast but burning too much cash relative to its growth rate.

What is the "Rule of 40" for growth companies?

Revenue growth % + profit margin % should exceed 40. It balances growth and profitability — a company growing 50% with -20% margins still scores 30 (below threshold).

Why do growth stocks fall sharply when interest rates rise?

Growth stocks are valued on future earnings. Higher rates increase the discount rate, making future cash flows worth less in present value — compressing valuations.

What revenue growth rate is the typical benchmark for growth stocks?

20%+ annual revenue growth. Below 15%, the stock is typically classified as value or mature.

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US Growth Investing: Betting on Future Earnings

Growth investing focuses on companies expanding revenue fast — even if they're not yet profitable. High risk, high reward. Think Nvidia, Tesla, Amazon in their early stages.

By Jim Liu · Published February 2026

TL;DR

Growth investing focuses on companies expanding revenue fast — even if they're not yet profitable. High risk, high reward. Think Nvidia, Tesla, Amazon in their early stages.

What Makes a Growth Stock?

Growth stocks typically grow revenue 20%+ per year, reinvest most profits back into the business (low or zero dividends), trade at high P/E or P/S ratios because investors are pricing in future potential, not current earnings.

Key Terms:

revenue growthP/E ratioP/S ratioreinvestment

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US Growth Investing: Betting on Future Earnings

What Makes a Growth Stock?

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