Tech & Growth Stocks

How fast-growing tech and software businesses are judged.

1. What Makes a Growth Stock — Tech and growth companies are valued on where they are going, not where they are today. Here is what separates a true growth business from a company that is simply popular, and why these stocks swing so much.
2. Recurring Revenue Models — Many software companies sell subscriptions instead of one-time licenses. Revenue that repeats every month or year is more predictable and more valuable. Here is how subscription businesses work and the metrics investors track.
3. Retention & Net Revenue Expansion — The best subscription businesses keep nearly all their customers and sell them more every year. Net revenue retention captures both in one number. Here is how it works and why it matters so much.
4. The Rule of 40 — Growth and profits often pull in opposite directions. The Rule of 40 is a quick way to judge whether a software company balances them well: add the growth rate and the profit margin, and look for 40 or more.
5. Valuing Unprofitable Growth — Many fast-growing companies have little or no profit yet, so the P/E ratio is useless. Investors lean on price-to-sales and long-term margin assumptions instead. Here is how that works and how to avoid paying any price for a good story.
6. Tech Cycles and Hype — Technology moves in waves: a breakthrough, a rush of excitement, a painful shakeout and then real long-term winners. Here is how to recognize where a trend stands and how to avoid getting burned by the hype.