Stock Evaluation Metrics Explained

Revenue Growth TTM

Trailing Twelve Months Revenue Growth

What it measures

Revenue is all the money a company brings in from selling its products or services, before any costs are subtracted. It is often called the top line because it sits on the first line of the income statement. TTM stands for trailing twelve months: the most recently completed twelve-month period. Revenue Growth TTM compares that period's revenue to the same period one year earlier. It is backward-looking, reported data, not an estimate, and it answers one question: how fast did this company actually grow?

Why it matters

TTM revenue growth is ground truth. Forecasts are opinions about the future; TTM is what already happened, taken from the company's own reported results. When TTM growth is strong and speeding up versus the prior year, real customers are spending real money at an increasing rate, which is one of the clearest signals that a business has momentum. When TTM is weak but forward estimates are high, be careful: you are being asked to pay today for execution the company has not yet demonstrated. The gap between what happened and what is promised is a risk you take on as the buyer.

The most powerful setup is when TTM growth is both high in absolute terms and increasing versus prior periods. That acceleration pattern signals that demand is expanding faster than expected and the business is building rather than plateauing.

The opposite pattern is just as important to recognize: growth that slows quarter after quarter. A business reporting quarterly revenue growth of +20%, +15%, +10%, +5% is still growing, but each step down says demand is cooling and the business is approaching a plateau. This matters to you as a holder because the market pays a premium price for confident, durable growth. When that confidence weakens, the price investors are willing to pay for each dollar of the company's earnings shrinks, and the stock can fall even while revenue is still rising. Consistent deceleration across four or more quarters is one of the clearest warning signals available.

How to read it

Illustrative Example: Revenue Growth Trajectories

Revenue Growth FWD

Forward Revenue Growth Estimate

What it measures

The consensus estimate for revenue growth in the company's next fiscal year. Professional analysts who cover a stock each publish their own forecast; the consensus is the average of all of them. FWD (forward) means this is a projection about the future, not reported data. It moves continuously as analysts revise their models, and it tells you what the market currently expects the company to deliver.

Why it matters

Forward estimates are the market's collective bet on the future. The relationship between FWD and TTM tells an important story about the direction of growth. A company where FWD exceeds TTM is in an acceleration phase; growth is expected to speed up. A company where FWD is below TTM is decelerating; the business is maturing or facing headwinds.

The ideal setup for a high-conviction buy is strong FWD combined with accelerating TTM: both real and expected growth are moving in the right direction. When the PEG also remains below 1.0 in that context (PEG is covered in full further down this page; in short, it checks whether the price you pay is justified by the growth you get), the position becomes a core holding candidate.

How to read it

Illustrative Example: FWD vs TTM Relationship

EPS Growth TTM

Trailing Twelve Months Earnings Per Share Growth

What it measures

EPS stands for earnings per share: the company's total profit divided by the number of shares that exist. If a company earns $2B in a year and has 1 billion shares, its EPS is $2. (Diluted EPS, the standard version used here, also counts shares that could be created by stock options and similar instruments, making it the more honest denominator.) EPS Growth TTM is the percentage change in that per-share profit over the past twelve months versus the prior-year period. It measures profit growth, not revenue growth, and the two can tell different stories: a company growing revenue at 30% while its costs grow even faster will show strong TTM revenue but weak or negative EPS TTM. That divergence matters.

Why it matters

Revenue tells you the business is growing. EPS tells you the business is compounding. The goal is not just a company that sells more; it is a company that earns more per share over time. When EPS TTM is strong and growing alongside revenue, the company is becoming more efficient as it scales, not just bigger. That efficiency has a name, operating leverage: costs grow slower than sales, so each new dollar of revenue produces more profit than the last.

Comparing EPS TTM to P/E FWD (the price you pay for each dollar of next year's expected earnings, explained in its own section below) is also a useful check. If per-share earnings keep growing but the P/E stays low, the market has not yet given the company credit for the quality of those earnings. That is the kind of gap this methodology targets.

How to read it

Illustrative Example: Revenue vs. EPS Growth Divergence

EPS Growth FWD

Forward Earnings Per Share Growth Estimate

What it measures

The analyst consensus estimate for EPS growth in the next twelve months. This is the primary input into the PEG ratio. When you divide a company's forward P/E by this number, you get the PEG FWD, the most important single metric in this methodology.

Why it matters

EPS Growth FWD is the bridge between valuation and growth. It determines whether a given P/E is cheap or expensive. A company with a P/E of 25 and EPS growth of 30% is cheaper, relative to the growth you are getting, than a company with a P/E of 12 and EPS growth of 4%. The P/E number alone means nothing without the growth rate sitting next to it.

An accelerating EPS growth trajectory is particularly compelling. When the consensus estimate shows growth increasing each year (12%, 16%, 20%, 25%), it suggests the business has operational leverage that will compound returns over time even if the stock does nothing in the near term.

How to read it

Illustrative Example: Accelerating EPS Trajectory

An accelerating trajectory like this shrinks the P/E on its own. P/E is price divided by earnings, so if the price sits still while earnings per share keep climbing, the ratio falls. A company at a P/E of 22 today, growing EPS at an accelerating rate, trades at a P/E of 11 to 13 four years later without the stock moving at all. The seemingly expensive price you paid becomes cheap in hindsight, purely because the earnings grew into it.

P/E FWD

Forward Price-to-Earnings Ratio

What it measures

The current stock price divided by the estimated earnings per share for the next twelve months. A worked example: a stock trading at $110, with expected earnings of $5 per share next year, has a forward P/E of 110 ÷ 5 = 22. You are paying 22 dollars today for each dollar of next year's expected profit. Investors call this number the multiple, as in "the stock trades at 22 times earnings." P/E FWD answers the question every investor eventually asks in front of the buy button: what am I actually paying for this?

Why it matters

P/E FWD is the primary valuation anchor in this methodology. It sets the baseline for how expensive or cheap a stock is relative to its near-term earnings power. But raw P/E numbers are almost meaningless without context. A P/E of 30 on a company growing earnings at 40% per year is not expensive. A P/E of 10 on a company with flat earnings and a deteriorating competitive position is not cheap.

The most important way to use P/E FWD is to set it next to the forward EPS growth rate and compare the two numbers directly. Suppose a company's P/E FWD is 22 and its forward EPS growth is 30%. The multiple (22) is lower than the growth rate (30). That is a strong signal: you are paying 22 times earnings for a business growing its earnings at 30% per year, which means the price has not caught up to the growth that is coming. Now flip it. The same company at a P/E of 35 with only 10% EPS growth has a multiple that demands far more than the earnings can deliver; the price is counting on a future the estimates do not support. This one comparison is the engine of the whole valuation approach, and it is exactly what the PEG ratio in the next section formalizes: a PEG below 1.0 is the mathematical way of saying the P/E is lower than the EPS growth rate.

Beyond the growth rate comparison, P/E should also be evaluated against the sector median (is this company pricing in a premium its peers are not?) and against the company's own 5-year average (is the market applying a historically unusual multiple?). When a stock trades below its own historical P/E average while still growing at the same or faster rate, that discount is often an opportunity.

How to read it

Illustrative Example: P/E Compression Over Time

This is why holding matters. A company that appears to have a "high" P/E today often looks cheap in retrospect if earnings growth continues. The market is slow to fully price in multi-year compounding, which creates the entry windows this methodology targets.

Illustrative Example: P/E vs. Sector Context

The same company can look "expensive" versus peers but "cheap" versus its own history. When a stock trades at a discount to its own 5-year average P/E while still growing at the same or faster rate, that is a historically unusual opportunity; the market is applying less credit to the same quality business.

PEG FWD

Forward Price/Earnings-to-Growth Ratio

What it measures

Forward P/E divided by the forward EPS growth rate. Using the first row of the table below as a worked example: a P/E of 26 divided by an EPS growth rate of 32 gives a PEG of 0.81. PEG adjusts the valuation for growth, answering the question that P/E alone cannot: is the price you are paying reasonable given how fast this company is actually growing?

Why it matters

PEG FWD is the single most important number in this methodology. It is the reason a company with a P/E of 25 can be a significantly better investment than a company with a P/E of 10. Growth rate context transforms the meaning of any multiple. Two companies trading at different P/E ratios can be equally valued on a growth-adjusted basis, or dramatically different.

The benchmark is 1.0. A PEG below 1.0 means you are paying less than one dollar of P/E for each percentage point of growth. That is where the best long-term opportunities tend to concentrate: quality businesses whose earnings growth has not yet been fully recognized by the market. A PEG above 2.0 means you are paying a significant premium for growth that is already priced in.

How to read it

Illustrative Example: Why P/E Alone Is Misleading

The high-growth tech company appears expensive at a P/E of 26. The slow-growth value company appears cheap at 11. But on a growth-adjusted basis, the high-growth company is far cheaper. PEG cuts through the surface-level multiple and reveals the actual value you are receiving per dollar paid.

Total Cash

Cash, Equivalents, and Short-Term Investments

What it measures

The total of cash, cash equivalents, and short-term liquid investments the company holds as of its most recent report. You find it on the balance sheet: the financial statement that lists everything a company owns and owes at a single point in time. Total cash is the portion of what it owns that is immediately spendable, without selling assets or borrowing money.

Why it matters

Judge a company's cash the way you would judge a person's savings: it is the cushion that turns a bad year into an inconvenience instead of a crisis, and the fuel for opportunities that appear when others are struggling. Cash is optionality. A company with a strong cash position can fund its own growth without issuing new shares (which would dilute your ownership), make acquisitions on favorable terms, buy back stock, invest aggressively in R&D while competitors are cutting costs, and survive unexpected disruptions without borrowing expensive money at the worst possible time.

The power of a strong cash position is most visible during downturns. When markets contract and credit tightens, cash-rich companies can act aggressively: hiring top talent at below-peak salaries, buying competitors at distressed valuations, or simply staying the course while leveraged competitors are forced into survival mode. Cash gives a business the ability to play offense when everyone else is playing defense.

A cash-heavy balance sheet also becomes an active financial advantage during Federal Reserve rate hiking cycles. When rates are elevated, a company with substantial cash holdings earns meaningful interest income. At 4-5% rates, $10B in cash generates $400-500M per year in interest income flowing directly to the income statement. Simultaneously, a company with little or no debt pays zero interest expense. Companies carrying heavy debt face the exact opposite: rising interest payments compressing earnings precisely when markets are already repricing risk. In a rate-hiking environment, balance sheet quality stops being only a risk metric and becomes an earnings-level competitive advantage.

The most useful way to read total cash is not in absolute terms but relative to total debt. A company with more cash than debt has a net-cash-positive balance sheet; it could theoretically pay off all obligations today. That is the strongest signal of balance sheet health.

How to read it

Illustrative Example: Balance Sheet Profiles

Total Debt

Total Short and Long-Term Debt Obligations

What it measures

The combined total of all short-term and long-term debt obligations on the company's balance sheet, including bonds, term loans, revolving credit facilities, and other interest-bearing liabilities.

Why it matters

Debt amplifies everything: both upside and downside. In growth phases, leverage can accelerate returns on equity. In downturns, debt creates mandatory interest expense that eats directly into earnings, constrains strategic flexibility, and in severe cases can threaten solvency. For long-term investors, the downside asymmetry of high debt is the primary concern: a leveraged company that runs into trouble has far fewer options than a cash-rich one.

The key question is not whether a company carries debt (almost all large companies do), but whether the debt is manageable relative to earnings power and cash position. The yardstick is free cash flow: the cash left over each year after paying operating costs and funding investment in the business, in other words the money actually available to service debt. A company generating $10B in annual free cash flow with $20B in long-term debt at a fixed low rate has no meaningful debt risk. A company generating $200M in free cash flow with $5B in short-term obligations at floating rates has a serious problem.

How to read it

Illustrative Example: Debt Risk Profiles

RSI

Relative Strength Index

What it measures

RSI is a number from 0 to 100, calculated from the last 14 trading days, that compares the average size of an asset's recent up days to the average size of its recent down days. After a stretch of heavy buying, RSI runs high; after a stretch of heavy selling, it runs low. Technical traders call this a momentum oscillator, but the plain-English version is simple: RSI measures how hard and how fast a price has recently been pushed in one direction, and whether that push looks stretched (overbought) or overdone (oversold) relative to its normal behavior.

Why it matters

In this methodology, RSI is an index and ETF timing tool, not a stock-picking tool. Individual companies are valued on fundamentals: the growth, valuation, balance sheet, and margin metrics covered on this page. A broad index is a different kind of purchase. You are not evaluating one business; you are buying a basket of hundreds, and the basket's short-term price is driven mostly by market-wide fear and greed. Technical signals like RSI measure exactly that, which is why the timing framework on the Indices page leans on them. If you have ever hesitated to buy an index fund during a scary market dip, or piled in right after a euphoric run, RSI is the guardrail for exactly those moments.

The core insight is that the broad market regularly sells off for reasons that have nothing to do with the long-term earnings power of the companies inside it: macro fear, interest rate scares, geopolitical shocks, or simple herd de-risking. When that happens, the index's RSI drops below 40 or 30, creating a window to deploy capital into the same basket of businesses at a better price than it offered two or three months earlier. Those are the moments the timing framework is built for.

Think of RSI as a discount detector for the broad market, not a predictor. It does not predict where prices will go next. It measures how much the price has already fallen relative to its recent behavior, a proxy for how much fear is already reflected in the level. For an individual stock, treat a low RSI as context at most: it never substitutes for the fundamental case, and it never turns a weak business into a buy.

How to read it

Illustrative Example: RSI as an Index Entry Signal

52-Week Range

Annual High-Low Price Range

What it measures

The lowest and highest price at which a stock or index has traded over the trailing 52 weeks. It provides context for where the current price sits within the annual trading range, effectively answering: is the price near its recent peak, near its recent low, or somewhere in between?

Why it matters

Like RSI, the 52-week range is used here as an index and ETF timing tool rather than a stock-picking tool. It is a practical way to check whether you are deploying capital at a historically unfavorable price relative to recent levels. When a broad index sits near its 52-week low, the market has already priced in a significant amount of pessimism. For a single company that pessimism may be fully deserved, but a broad index is a basket of hundreds of businesses, continually refreshed with its market's strongest companies, so an index near its annual low usually reflects market-wide fear rather than something simultaneously broken inside every company in the basket. Deploying near the low typically offers better risk/reward than deploying near the high.

This metric pairs directly with RSI. When an index is in the lower 25% of its annual range and its RSI is below 40, both signals are aligned: prices have already fallen substantially and the selling pressure is real. That combination marks the highest-value deployment windows the timing framework identifies, and it is exactly the moment to check the VIX and sentiment signals on the Indices page next.

For individual stocks, treat the range as context rather than a signal. A great business near its 52-week high can still be the right buy if the fundamentals and valuation support it, and a stock at its 52-week low can fully deserve to be there. What the range does prevent is a common mistake: assuming a price "feels cheap" without any frame of reference for where it sits historically. Anchoring to the range forces a relative comparison; it just never replaces the fundamental case.

How to read it

Illustrative Example: Range Position and Risk/Reward

Gross Margin

Revenue Minus Cost of Goods Sold, as a Percentage of Revenue

What it measures

Gross margin starts with the cost of goods sold: the direct costs of producing whatever the company sells (materials, manufacturing, hosting costs for software, and so on). Subtract that from revenue, divide by revenue, and you have gross margin: the share of each sales dollar left over after making the product. A worked example: a company sells $100M of software that costs $20M to deliver. Gross profit is $80M, so gross margin is 80%. That 80 cents of every revenue dollar is what remains to pay for everything else (sales, marketing, R&D, administration) before any profit exists.

Why it matters

Gross margin is one of the clearest signals of business model quality. High gross margins mean the company retains a large portion of each dollar of revenue to cover operating costs and generate profit. Low gross margins mean most revenue is consumed by the cost of delivering the product or service, leaving very little room for profitability even at large scale.

The direction of gross margin over time matters as much as the current level. Rising gross margins signal that the company is in a position of strength: it can charge higher prices, manage input costs effectively, and improve profitability as it scales. Falling gross margins signal competitive pressure, pricing deterioration, or cost growth outpacing revenue. When professional investors see gross margins declining, they often read it as a systemic threat to the business and sell accordingly. Expanding gross margins do the opposite: they attract premium valuations because they signal a widening competitive moat (the durable advantages that protect a business from competitors).

How to read it

Illustrative Example: Gross Margin by Business Type

Net Margin

Net Income as a Percentage of Revenue

What it measures

The percentage of revenue that becomes profit after every cost is subtracted: cost of goods sold, operating expenses, sales and marketing, R&D, interest expense, and taxes. If a company brings in $100M of revenue and, after all of that, keeps $22M as profit, its net margin is 22%. Where gross margin measures the product's economics, net margin is the bottom line: how efficiently the whole company converts revenue into earnings.

Why it matters

Net margin is the final test of whether a business is building wealth at scale. A company can have strong gross margins and still post thin or negative net margins if operating expenses are out of control. The path from gross margin to net margin tells the story of cost management: each layer of expense between gross profit and net income should be declining as a percentage of revenue as the business scales.

Like gross margin, the direction of net margin over time matters as much as the current level. A rising net margin trajectory means the company is building operating leverage: each additional dollar of revenue produces more profit than the last. This is the engine of long-term earnings compounding. A declining net margin trajectory, even alongside strong revenue growth, signals that costs are growing faster than the business, a structural problem that limits how much of the revenue growth translates into shareholder value over time.

How to read it

Illustrative Example: Net Margin Trajectories