growth-metrics-revenue-cagr-same-store-sales — evaluating investments

The practical point: a reported 18% revenue CAGR can be "real" and still be low-quality if only ~13.8% is organic and same-store sales decelerate from +8.2% to +2.1% over 5 years—because forward growth typically decays ~52% when headline CAGR exceeds 20%. (Chan, Karceski & Lakonishok, 2003; DOI: https://doi.org/10.1111/1540-6261.00540; see also ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Why Growth Metrics Matter

Growth is a rate, not a strategy. The empirical record is that extremely high growth is mathematically hard to sustain: only 14.3% of firms that held 20%+ revenue CAGR for 5 years sustained 20%+ for the next 5 years, and the median decay rate was 52%. The point is: if you project "straight-line" growth, your model is systematically optimistic by construction. (Chan, Karceski & Lakonishok, 2003; DOI: https://doi.org/10.1111/1540-6261.00540)

Growth also mean-reverts at the high end. In one long-run research result, companies with >25% revenue CAGR for 5+ years saw growth rates decline to 8.2% on average within 3 years. That is a 16.8 percentage point drop you must either price in or explicitly argue against with numbers. (Dechow & Sloan, 1997; DOI: https://doi.org/10.1016/S0304-405X(96)00887-2)

Revenue CAGR: What It Measures (and What It Hides)

Definition and formula (the non-negotiable version)

Revenue CAGR is the geometric growth rate that turns a beginning revenue into an ending revenue over n years:

[ \textbf{CAGR} = \left(\frac{\text{Ending Revenue}}{\text{Beginning Revenue}}\right)^{1/n} - 1 ]

If you use an arithmetic average instead, you can overstate "growth" by 1.2–3.8 percentage points on volatile series, which can inflate a DCF fair value by 15–25% via a higher terminal value. (Common mistake data: ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Quantified sustainability thresholds (use these as default priors)

Use a simple classification that is explicitly conditional on organic contribution:

High sustainability: 8–15% CAGR with >75% organic contribution
Moderate sustainability: 15–25% CAGR with >50% organic contribution
Low sustainability: >25% CAGR or <50% organic contribution
Forward adjustment rule: if current CAGR is >20%, apply 52% decay as a base-case projection anchor (i.e., multiply by 0.48)

(Thresholds: ../research/growth-metrics-revenue-cagr-same-store-sales.json; decay evidence: Chan, Karceski & Lakonishok, 2003)

Base effects: the arithmetic you can't negotiate with

A "constant" 20% CAGR becomes harder purely because the revenue base grows.

If revenue is $1.0B, 20% growth requires +$0.2B next year.
If revenue is $5.0B, the same 20% requires +$1.0B next year.
The incremental dollars required are 5× larger after the base expands 5×, even before competition and saturation show up.

That "5× harder in dollars" is why the 52% median decay is not a pessimistic story—it's a default mathematical constraint. (Chan, Karceski & Lakonishok, 2003; DOI: https://doi.org/10.1111/1540-6261.00540)

Same-Store Sales (SSS): The Organic Growth Signal You Actually Underwrite

Definition (retail-specific, operationally falsifiable)

Same-store sales (also "comparable sales") measure revenue growth from a constant store base—typically stores open for >12 months—so you're isolating price × traffic × mix effects rather than adding revenue by opening new units.

Benchmarks in real terms (inflation-adjusted)

Use inflation-adjusted (real) SSS thresholds as a decision rule:

Excellent: >5% real (market share gains)
Healthy: 3–5% real (organic demand)
Acceptable: 1–3% real (roughly GDP-like)
Concerning: 0–1% real (stagnation)
Distressed: <0% real (attrition)

(Thresholds: ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Why SSS predicts durability (with a number, not a vibe)

SSS is not "nice to have"; it links to long-run economics. One research finding: >3% real SSS is associated with a 2.4× higher probability of sustaining ROE above cost of capital over 10-year periods. The point is: SSS is a proxy for pricing power and repeat demand without requiring proportionate capex. (Nissim & Penman, 2001; DOI: https://doi.org/10.1023/A:1011338221623)

A retail red flag you can quantify in quarters

Treat this as a mechanical trigger for deeper work:

SSS deceleration: 3+ consecutive quarters where SSS declines by >1 percentage point per quarter—that's not a narrative; it's a screen that forces you to model lower growth or prove why the pattern breaks. (Rule: ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Organic vs. Acquisition Growth: Decompose or You're Not Doing Analysis

The decomposition method (explicit and auditable)

You split total revenue growth into:

Organic growth (same-store sales + new units you opened yourself + pricing, net of closures)
Inorganic growth (acquired revenue, net of divestitures)

A working rule for "quality" classification:

Organic CAGR should be >60% of total CAGR
In retail, same-store contribution should exceed new-unit contribution by 1.5× for a sustainable model
Acquisition-driven growth with debt/EBITDA >4× is a balance-sheet sustainability warning

(Rules: ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Why the source of growth changes the odds (quantified)

Research decompositions find organic (same-store) growth explains 73% of future profitability variance versus 31% for acquisition-driven growth. The point is: you should not pay the same multiple for two identical headline CAGRs when one is ~69% organic and the other is ~26% organic. (Fairfield & Yohn, 2001; DOI: https://doi.org/10.1023/A:1012430513430)

Worked Example: You Audit an 18% CAGR Claim Like an Investor

You're evaluating a mid-cap specialty retailer reporting 18% revenue CAGR over 5 years and attributing it to "execution." Your job is to turn that into a numeric growth-quality view. (Scenario data: ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Step 1—You verify the CAGR (not the press release)

You pull revenues: Year 0 = $847M, Year 5 = $1,932M, n = 5.

You calculate:

CAGR = ((1932/847)^{1/5} - 1)
(1932/847 = 2.281)
CAGR = 17.9%

You find management's "18%" is consistent within 0.1 percentage points rounding tolerance.

Step 2—You decompose organic vs acquisition growth

You identify 3 acquisitions contributing $312M of revenue by Year 5.

So organic Year 5 revenue is $1,620M (= $1,932M – $312M).

You calculate organic CAGR:

Organic CAGR = ((1620/847)^{1/5} - 1) = 13.8%

Now you quantify the gap:

Total CAGR = 17.9%
Organic CAGR = 13.8%
Acquisition contribution = 4.1 percentage points, which is ~23% of total growth (4.1 / 17.9)

Step 3—You measure SSS deceleration as a rate

You extract SSS by year: +8.2%, +7.1%, +5.3%, +3.8%, +2.1%.

You compute the trend:

Deceleration from 8.2% → 2.1% is –6.1 percentage points across 4 intervals, or ~–1.5 pp/year.

If that persists one more year, your Year 6 SSS estimate is ~+0.6% (= 2.1 – 1.5).

Step 4—You score sustainability with explicit inputs

You apply a simple scorecard:

SSS trend: declining (–2)
Organic/total ratio: 69% organic (+1)
ROIC–WACC spread: +4.2% (+2)
CAC trend: +12% per year (–1)

Net: 0 (neutral sustainability).

Step 5—You model forward growth with decay, then stress it

Base case: apply 52% decay to the current 17.9% CAGR:

Forward CAGR anchor = 8.6% (= 17.9% × 0.48)

You then align with the SSS path:

Baseline: 8–10% forward 3-year CAGR if SSS normalizes to 2–3%, with valuation "fair" at 22× P/E
Good: SSS stabilizes >3%, organic CAGR stays >10%, probability 25%
Poor: SSS turns negative within 18 months, multiple compresses 40–50%, probability 35%

(Scenario outcomes: ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Historical Examples: Where the Metrics Were the Warning System

Starbucks (2007–2012): SSS broke first, then the stock

SSS declined from +7% (2006) to –8% (Q4 2008), then recovered to +8% (2012) after closing 900 stores.
Stock fell 82% peak-to-trough, then returned 650% from the 2009 low when management re-centered on same-store performance over raw unit growth.

(Source: Starbucks 10-K filings 2006–2012; Bloomberg; as compiled in ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Valeant (2010–2016): 74% CAGR that was mostly acquisition math

Reported 5-year revenue CAGR: 74%
Organic CAGR excluding acquisitions: –2.3%
Debt/EBITDA peaked at 7.2×
Market cap fell from $90B to $4B (–95.6%) when acquisitions stopped and irregularities surfaced.

(Source: SEC filings; 2016 testimony; ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Chipotle (2015–2019): SSS as an operational quality proxy

Pre-crisis SSS: +10.4% (2014)
Trough SSS: –23.6% (Q1 2016)
Recovery: 14 quarters to return positive; the extended recovery aligned with 3-year underperformance versus the QSR index.

(Source: quarterly releases; S&P Capital IQ; ../research/growth-metrics-revenue-cagr-same-store-sales.json)

Common Implementation Mistakes (and What They Cost You)

You average growth rates arithmetically instead of using CAGR. You overstate growth by 1.2–3.8 pp, and your DCF terminal value can inflate fair value by 15–25% because the compounding base is wrong. Fix: compute ((\text{End}/\text{Begin})^{1/n}-1) and re-compound to match the ending revenue exactly. (../research/growth-metrics-revenue-cagr-same-store-sales.json)
You treat acquisition growth as equal to organic growth. You ignore that acquisition-driven growth has delivered 41% lower subsequent returns, and you raise your odds of a value-trap outcome by 2.3× when you fail to decompose. Fix: flag cases where acquisitions exceed 40% of total growth; haircut the multiple on acquisition growth to 0.6–0.7× the organic multiple. (../research/growth-metrics-revenue-cagr-same-store-sales.json)
You extrapolate elevated SSS without base-effect mean reversion. When SSS is >5% for 3+ consecutive years, it mean-reverts to ~1.8% within 2 years in 78% of cases; extrapolators overestimate forward revenues by 12.4% on average. Fix: for each year SSS exceeds 5%, reduce forward SSS by a cumulative 0.8× and compare against a 10-year company average. (../research/growth-metrics-revenue-cagr-same-store-sales.json)

Implementation Checklist (Tiered by ROI)

Highest ROI (30–60 minutes): Recompute 5-year CAGR from reported revenues; decompose organic vs acquisition; compute organic share and require >60% for "quality"; apply 52% decay if CAGR is >20%.
High ROI (2–4 hours): Build an SSS time series (>12 quarters); flag 3+ decelerating quarters at >1 pp/quarter; benchmark SSS to real thresholds (e.g., 3–5% healthy, <0% distressed).
Medium ROI (1 day): Stress test valuation: model a 40–50% multiple compression path when SSS turns negative within 18 months; explicitly test an acquisition leverage ceiling of 4× debt/EBITDA.
Lower ROI (1–2 weeks, but decisive): Audit metric integrity by reconciling revenue growth to sell-through; treat a >4 pp gap as a channel-stuffing indicator; escalate diligence if organic growth is <50% of reported CAGR for 2+ years. (Red-flag rules: ../research/growth-metrics-revenue-cagr-same-store-sales.json)

The Durable Lesson

You don't underwrite "18%"; you underwrite (a) the organic share (e.g., 13.8% of 17.9%), (b) the SSS path (e.g., +8.2% → +2.1% in 5 years), and (c) a forward decay rule (e.g., 52% when CAGR is >20%). If the numbers don't clear those thresholds, the correct action is not a better story—it's a lower growth forecast, a lower multiple, or a smaller position size.

Growth Metrics: Revenue CAGR, Same-Store Sales