If an investor can remember one thing, it’s this:
Revenue GROWTH is the cornerstone of a company’s ability to drive stock growth over time. Period. Full stop.
It’s the top-line figure on an income statement—the starting point that dictates how much a business can ultimately trickle down to earnings per share (EPS), i.e., “the bottom line,” that investors should understand and fixate on. Without strong revenue growth, achieving EPS growth becomes a steep uphill battle. Relying on cost-cutting, one-off gains, share buy-backs, and other forms of financial engineering rather than top line business growth is a recipe for mediocre to poor performance. A company’s ability to grow its top line signals demand, market strength, and scalability—key drivers that will ultimately propel stock prices upward.
Amazon exemplifies this dynamic; Amazon’s revenue story is a masterclass in growth translating to stock success, while so many other legacy giants like Ford, IBM, Intel, and Johnson & Johnson (just to name a few) illustrate the pitfalls of revenue stagnation.
Over the last 10 years, Amazon’s revenue skyrocketed from a little over $100 billion to over $600 billion, a compound annual growth rate (CAGR) of nearly 20%. This surge, propelled by e-commerce dominance and AWS’s rise which has translated into a stock return of over 1,000%, with shares climbing from roughly $18 (split-adjusted) to $190+. Amazon’s relentless top-line expansion, paired with margin improvements, has kept investors enthusiastic, even as its forward P/E sits at just over 30, signaling confidence in future growth.
Let’s compare some other well-known companies to Amazon:
- Ford, where revenue grew anemically at a compound annual growth rate of about 2.3%. Hampered by a mature auto market and EV transition costs, Ford’s stock returned just 6% for the entire decade. Investors would have been better off sitting in cash than owning Ford.
- IBM’s revenue actually shrank from $92 billion to $62 billion, a negative growth rate of -3.8%, reflecting legacy business declines despite several pivots in their business. IBM stock failed to match the market return, returning a bit more than 1/2 of what the overall stock market produced.
- Intel’s revenue was essentially flat over the last 10 years stymied by chip market challenges, and the stock market rewarded investors with a negative -6% return over the last 10 years. Ouch.
- And finally, Johnson & Johnson grew its revenue at a paltry CAGR of 1.8% over the last 10 years, and its stock returned just 1/2 of the stock market.
What does this tell us? Amazon’s decade of powerful revenue growth underscores how top-line strength drives EPS and stock gains. Ford, IBM, Intel, and Johnson & Johnson, with flat or declining revenues, struggled to deliver adequate market returns.
If you don’t have strong revenue growth, it’s extremely difficult to have strong stock growth.
What’s the takeaway? It all starts with the top line: Revenue growth is the engine that powers stock success.
-Paul R. Rossi, CFA