All Revenue is Not Created Equal: The Keys to the 10X Revenue Club | Above the Crowd

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Above the Crowd
All Revenue is Not Created Equal: The Keys to the 10X Revenue Club

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Basically, there are many more low-price/revenue multiple companies than high.
Over 72% of the companies have a 2012 price/revenue multiple below 4x.
Also recognize that the majority of these high multiple companies are domiciled outside the U.S. This is important because the press tends to favor the higher multiples, such as 10X revenues, as their “defaults.” The problem is, only a handful of companies deserve to be in the “10X club.”
Here are some of the key business characteristics that would be used to separate high quality revenue companies from low quality revenue companies, and therefore are the distinguishing traits that warrant high price/revenue multiples.
RIM has a 12% estimated 2012 growth rate and a 0.77x price/revenue multiple.
If high price/revenue multiple companies have wide moats or strong barriers to entry, then the opposite is also true.
In fact, companies with excessively low churn rates (5% annually or less) are very likely to have price/revenue multiples in the top decile.
As a result, lower gross margin companies will trade a highly discounted price/revenue multiples.
Companies that are increasing their profit percentage while they grow are capable of carrying very high valuation multiples, as future periods will have much higher earnings and free cash flow due to the cumulative effect of growth and increased profitability.
Investors will discount the price/revenue valuation of any company that is heavily dependent on another partner is some way or form.
You will be hard pressed to find a company with a heavy marketing spend with a high price/revenue multiple.
The majority of companies that are heavy marketers trade at price/revenue multiples well below Netflix.
Which company deserved a higher price/revenue multiple?
So there are ten business characteristics that can impact a company’s chances of making it into the 10X+ price/revenue multiple club

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