It’s been going on for years and despite being absolutely stupid it persists to this day. At least half of the company investment decks I review highlight their “Compound Annual Growth Rate” or CAGR as part of their “investment case.”
If you see it get ready to do your own work because it’s pure obfuscation. The reason is very simple - if you start with a small number in the beginning you can generate giant CAGR with little to no recent growth. You can even be shrinking and still post a big positive CAGR.
Look at these three companies. The one boasting the best CAGR is by far the worst. Sure they are up a lot for the first year but their last three years have been stagnant. Contrast that with the best of the bunch (Company C) which has 1/2 the CAGR but has powerful and accelerating revenue growth.
Experienced investors are not fooled by this but why is this ridiculous and misleading figure so prominent in modern investment presentations? Are company management teams and their investment bankers smiling and winking because they’ve done such a crafty thing?
Other factors matter, especially gross margins and the increase in sales and marketing spend, but the heart of a strong story is solid or accelerating revenue growth.
CAGR tells you nothing about that.