To find a stock’s growth rate, use CAGR from price or EPS, or compute sustainable growth with ROE × retention ratio.
Looking for a quick, reliable way to estimate business momentum? This guide walks you through simple math and clean data pulls so you can spot durable growth without guesswork.
How to Find Growth Rate of Stock: Core Methods
There isn’t one “right” number. Different lenses answer different questions. Price CAGR tells you what the market delivered. Revenue and EPS growth tell you what the company produced. Dividend growth shows how cash returned to owners is trending. Sustainable growth connects growth to funding capacity.
| Method | What You Need | When To Use |
|---|---|---|
| Price CAGR | Starting and ending price, years | Market return over a set stretch |
| Revenue CAGR | Start and end revenue, years | Top-line expansion without leverage effects |
| EPS CAGR | Start and end EPS, years | Per-share profit growth after dilution |
| Free Cash Flow CAGR | Start and end FCF, years | Growth in owner earnings |
| Dividend Growth | DPS now vs. prior period(s) | Cash return trend for dividend payers |
| Sustainable Growth (g = ROE × retention) | ROE, payout or retention ratio | Growth a firm can fund from earnings |
| Analyst Implied | Forward EPS/FCF and payout plans | Cross-check against market expectations |
Finding A Stock’s Growth Rate — Step-By-Step
Step 1: Pick The Metric That Matches Your Use Case
For a long-term owner lens, EPS and free cash flow per share shine. For dividend valuation, dividend growth matters. For pure performance over a window, price CAGR is fine, as long as you note starting and ending dates and any splits.
Step 2: Pull Clean Numbers From Filings
Use the annual report to gather revenue, net income, EPS, dividends per share, and share count. Cross-check the MD&A narrative for one-offs. Stick to a consistent fiscal year. If a company changed segments or accounting, jot it down so your math stays apples to apples.
Step 3: Compute CAGR
CAGR uses the geometric mean: CAGR = (Ending ÷ Beginning)^(1/Years) − 1. It smooths choppy year-to-year swings into one clean annual rate.
Step 4: Estimate Sustainable Growth
Sustainable growth blends profitability with reinvestment. The classic shorthand is g = ROE × retention ratio. Retention is one minus the dividend payout ratio. ROE is net income divided by average equity. This tells you how fast equity can grow without fresh equity or more leverage.
Step 5: Compare And Sanity-Check
If EPS CAGR outruns revenue CAGR by a wide margin, margin expansion or buybacks did the lifting. If revenue climbs while free cash flow lags, working capital or capex may be heavy. If sustainable growth trails revenue growth over many years, the firm may be leaning on debt or dilution.
Quick Formulas You’ll Use Often
- CAGR = (End ÷ Begin)^(1/Years) − 1
- Retention Ratio = 1 − Dividend Payout Ratio
- ROE = Net Income ÷ Average Shareholders’ Equity
- Sustainable Growth = ROE × Retention Ratio
- Dividend Growth over n years = (DPS_end ÷ DPS_begin)^(1/n) − 1
Worked Walkthrough With Small Numbers
Say EPS rose from $2.00 to $3.25 over five years. CAGR = (3.25 ÷ 2.00)^(1/5) − 1 ≈ 10.2% per year. In the same span, revenue rose from $5.0B to $7.5B: CAGR ≈ 8.4%. If average ROE was 16% and the payout ratio was 35%, retention is 65%, so sustainable growth ≈ 10.4%. These figures line up, which adds confidence.
To check cash discipline, look at free cash flow per share. If it trails EPS growth badly, dig into capex cycles or stock-based pay. Growth that fails to convert to cash rarely lasts.
Dividends And The Gordon Growth Lens
Dividend discount models need two inputs you now have: a required return and a dividend growth rate. For stable dividend payers, a constant growth setup can be a handy cross-check on price. Keep the payout ratio steady in your model and use a dividend growth rate that matches your dividend CAGR. If dividend growth has been lumpy, use a range.
Common Pitfalls And Easy Fixes
Mismatched Periods
Use the same start and end years for each series. When a fiscal year shifts, align to the new year or use trailing-twelve-month values.
One-Off Distortions
Exclude windfalls or impairments when they distort EPS. Document the adjustment in a note so you reproduce your work later.
Buybacks And Dilution
Per-share growth can look strong even if total profit barely moves when buybacks are heavy. Track share count. If share count rises, your per-share growth can lag business growth.
Debt-Fueled Spikes
Rapid revenue jumps funded by big leverage can sag when the cycle turns. Compare growth against interest coverage and free cash flow.
Reference Tools And Where To Read The Numbers
For a quick CAGR check on price or dividends, the Investor.gov compound interest calculator mirrors the same math. For line items like revenue, EPS, and payout policies, read the annual report on Form 10-K. The SEC’s plain-English guide, How to Read a 10-K, shows where to find MD&A, audited financials, and key tables.
Table: Inputs, Formulas, And Sample Values
| Item | Formula Or Source | Sample |
|---|---|---|
| Revenue CAGR | (Rev_end ÷ Rev_begin)^(1/n) − 1 | $5.0B → $7.5B over 5 yrs = 8.4% |
| EPS CAGR | (EPS_end ÷ EPS_begin)^(1/n) − 1 | $2.00 → $3.25 over 5 yrs = 10.2% |
| Dividend Growth | (DPS_end ÷ DPS_begin)^(1/n) − 1 | $1.00 → $1.35 over 5 yrs = 6.2% |
| Retention Ratio | 1 − Payout Ratio | Payout 35% → Retention 65% |
| ROE | Net Income ÷ Avg. Equity | $800M ÷ $5,000M = 16% |
| Sustainable Growth | ROE × Retention | 16% × 65% = 10.4% |
| Price CAGR | (Price_end ÷ Price_begin)^(1/n) − 1 | $50 → $81 over 5 yrs = 10.2% |
How Pros Cross-Check Growth
Link Growth To Returns On Capital
When ROIC exceeds the cost of equity and a company can reinvest at that spread, growth adds value. When the hurdle is higher than returns, growth can destroy value. Pair growth math with return metrics to avoid glamour traps.
Map Growth To Cash Conversion
Follow free cash flow margin and cash conversion cycle. Rising sales with longer receivables days can mask pressure. Healthy growth keeps cash conversion steady or improving.
Check Dividend Policy Against Cash
If a payout ratio creeps up while free cash flow stalls, dividend growth will lag. The Gordon growth setup needs a stable payout and a steady growth rate; shaky cash throws it off.
Simple Spreadsheet You Can Build
Create four rows for Revenue, EPS, Free Cash Flow Per Share, and Dividends Per Share. Add columns for Begin, End, and Years. In the next row, place the CAGR formula. Then add cells for payout ratio and ROE to compute sustainable growth. Freeze the header row so you paste numbers from filings with fewer errors. Save one tab per company so you can compare later.
When Growth Rates Disagree
Revenue growth higher than EPS growth: margin pressure, rising interest, or dilution. EPS growth higher than revenue growth: operating leverage, buybacks, or mix shift. Free cash flow growth lower than EPS growth: heavy capex or poor working capital. Dividend growth far below EPS growth: management stockpile of cash or a reset coming. Each pattern says something different; write down the cause you believe and link it to facts in filings.
Where The Keyword Fits Naturally
Readers land here asking, “how to find growth rate of stock” because they want a practical process. You now have a checklist you can run on any ticker without arcane math.
Final Tips You Can Use Today
- Stick to one data source per metric to avoid rounding conflicts.
- Use splits-adjusted figures for price and per-share items.
- Rebuild numbers from filings when aggregator data looks odd.
- Track both compound rates and year-by-year so you see trend shape.
- Keep a small log of any adjustments so your work is repeatable.
- Save your input links next to the numbers so audit is fast.
Where To Get Inputs Fast
Primary source beats summaries. Start with the latest Form 10-K and the most recent Form 10-Q in the SEC database, then confirm numbers against the investor relations page. If you prefer a quick screen, use a data site to pull history, but verify any odd jump against the filing. For dividends, the company’s dividend history page is the cleanest record.
Quality Checks Before You Trust A Number
Scan for restatements in the notes. Compare diluted EPS to basic EPS to see the scale of stock-based awards. Look for business combinations or divestitures that change comparability. If revenue recognition changed, read the policy note to see the effect. When share count swings, many times a buyback or a new equity grant is behind it; tie it to the cash flow statement and the equity footnote.
Next Moves On Your Watchlist
Pick three companies you already follow. Build the small spreadsheet once, copy it. Paste five years of revenue, EPS, free cash flow per share, and dividends per share. Compute CAGR for each, plus sustainable growth from ROE and retention. Save links to the 10-K and 10-Q you used. Add one short note on any one-offs. You’ll have a repeatable growth check you can refresh in minutes.