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Forecasting Revenue Growth When Valuing a Company

Watch the video with Andrew Stotz on forecasting revenue growth when valuing a company or read a summary below.

  • How does an analyst forecast sales growth?
  • What if a company is in a cyclical industry?
  • What if the company has very volatile sales growth?
  • Is it wrong to forecast a steady growth rate for each of the future years?

Is a forecast of 9.6% unrealistic?

Forecasting Revenue Growth When Valuing a Company by @Andrew_Stotz #Valuation

The problems:

  • This is not a likely outcome
  • The analyst may not have deeply modeled revenue
  • Users of the forecast may lose confidence

Would this forecast be more acceptable?

Forecasting Revenue Growth When Valuing a Company by @Andrew_Stotz #Valuation

The problems:

  • How could the analyst accurately predict the swings in the sales growth?
  • How confident would someone be with the analyst’s negative forecasts in 2026 and 2027?

Are these forecasts the same?

Forecasting Revenue Growth When Valuing a Company by @Andrew_Stotz #Valuation

  • This combines the prior two charts and you see that 9.6% is an average of all the points
  • So is an average really that unrealistic?
  • Does an average take into consideration the wide variety of outcomes?

What you have learned

  • Yes, using an average revenue growth rate in a forecast seems unrealistic
  • But it may appear less unrealistic than a wildly swinging forecast of each year’s revenue growth going out ten years
  • Actually, an average incorporates those wild swings
  • Therefore an average forecast is not as inaccurate as it may appear to some

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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.