The Growth grade for all qualified companies in Morningstar's stock universe is based on valuation of revenue per share using data from the past five years. Companies with less than four years of consecutive revenue per share figures including the revenue per share figure for the latest fiscal year are tossed from calculations and are assigned “--“ for the growth grade. For the remaining qualified universe of stocks, the growth grade is based on the valuation of the growth rate of fully diluted revenue per share. Stocks are sorted based on the z-score of their revenue per share growth rate, from the most negative z-score to the most positive z-score and grouped into 10%, 20%, 40%, 20%, 10% buckets with F, D, C, B, grades respectively for growth.
Origin
We use the raw growth numbers in our database, gathered from primary documents such as annual reports, and run them through a proprietary formula. Then we rank companies within their sectors to determine their grades.
Benefit
This grade encapsulates the most important information about growth into a single rating which allows easy comparison between companies.
For the Pros
The growth grade consists of three components, which are weighted to arrive at an overall growth grade:
Raw Growth: We look at historical sales growth over the past five years. The faster a company’s growing, the better.
Trend: We reward companies whose sales growth is speeding up and punish those whose sales growth is slowing down.
Consistency: We reward companies with steady year-by-year sales growth over the past five years, and punish those with volatile sales growth.