Investing can be easy - if you know the right criteria. 💡
When choosing shares, you should not only look at the share price, but also at real key figures that measure growth and profitability.
🔹 Rule of 40 - the rule of thumb for growth companies:
Add sales growth + EBITDA margin. If the value is above 40%, you are on a profitable growth path.
🔹 IRS (Investment Return Score) - the clever filter:
If you divide the Rule of 40 by the market capitalization, you can see which companies grow most efficiently per dollar invested.
✅ Advantage:
- You recognize small, efficient growth companies.
- You avoid large, expensive companies that offer less potential per dollar invested.
Application examples:
Palantir :
Rule of 40 (%) = 94
Market capitalization = 379 billion USD
IRS = 0.248
NVIDIA:
Rule of 40 (%) = 163
Market capitalization = USD 1,000 billion
IRS = 0.163
Robinhood:
Rule of 40 (%) = 92
Market capitalization = USD 25 billion
IRS = 3.7
- A higher IRS does not necessarily mean that $HOOD (-0.84%) "better" or more profitable, but that the score appears more attractive in relation to the market capitalization.
- IRS is a screening tool, not an absolute measure of future returns.
- NVIDIA could still be a safer, stable and highly profitable investment, only the IRS is lower due to the high market capitalization.
Invest smart, not just by gut feeling! 🚀
What does it look like for you? What criteria do you use to buy new shares?
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