My Investor Days: When the Numbers Didn’t Add Up
I remember sitting in a meeting with the CFO of a fast-growing public company—great margins, double-digit revenue growth, expanding customer base. On paper, they were doing everything right. But their stock had flatlined for six months.
They wanted answers.
As an investor at the time, I didn’t fault the fundamentals. What I saw was something different: a complete disconnect between how they talked about their business and how we, as investors, evaluated performance. Their quarterly materials were dense with operational detail, but lacked the narrative clarity or KPIs that could help us model upside. There was no bridge between the numbers and the value we could believe in.
And that’s when it clicked for me: performance and perception aren’t the same thing. Especially in public markets.
Years later, as an IR consultant, I still think about that moment. It’s not enough to achieve growth. You have to frame it in a way the market understands. That’s where growth-adjusted multiples come in. They’re how investors level the playing field across industries, sectors, and growth rates, and how they decide what your company is really worth.
Let’s break down what they are, how they work, and why most companies get them wrong.
The Valuation Disconnect
Same story for your company, right? You’re delivering on every promise. Revenue is up. Execution is sharp. The team’s aligned. Internally, it feels like momentum is building—but externally? Your share price won’t budge. The board is pressing for answers, and investors seem disengaged. It’s not that they’re ignoring you—it’s that they’re not seeing what you see.
I remember evaluating a company recently that was absolutely flying—50% YoY revenue growth, expanding into new markets, stellar gross margins. But their valuation multiple was barely budging. Why? Their investor materials buried the lead. No one on the buy side could easily model the upside. The story didn’t match the performance, and the result was a valuation gap that shouldn’t have existed.
This isn’t rare. It’s one of the most frustrating realities for CEOs and CFOs in high-performing businesses: when investors don’t pay for the growth you’re delivering, your company becomes undervalued—despite doing everything right.
That’s where growth-adjusted multiples come in. These metrics show investors not just what your company is worth today, but how it compares to similar companies in terms of long-term potential. In this post, we’ll explain what they are, how to calculate them, and most importantly, how to use them to close the gap between performance and valuation.
Beyond Simple Multiples – Why the Old Metrics Fall Short
The traditional metrics—EV/Revenue, EV/EBITDA, P/E—have been investor staples for decades. But used in isolation, they paint an incomplete picture. And for growing companies, they often do more harm than good.
Here’s the problem: these valuation multiples don’t account for growth. A company trading at 10x EV/Revenue may look expensive. Until you realise it’s growing revenue at 80% YoY. Compare that to a peer trading at 6x EV/Revenue with just 10% growth. The cheaper multiple? It’s an illusion.
As an investor, I saw this constantly. You’d run a screen of “similar companies,” sort by trading multiples, and immediately question the outliers. But without layering in growth rate—or better yet, a growth-adjusted multiple—you’re not comparing apples to apples. You’re comparing surface-level numbers without accounting for what actually drives long-term returns.
This is why growth-adjusted multiples exist. By dividing a valuation multiple (like EV/Revenue) by the company’s growth rate, you normalise the data—making it easier to see what investors are truly paying for each unit of growth. It’s a way to surface meaningful insights from a sea of raw financial metrics.
And when you present this context in your investor communications, you do more than educate, you differentiate. You give investors a better lens to view your business, and that can lead to more accurate—and fairer—valuation.
What Are Growth-Adjusted Multiples? (The Investor’s Formula)
Growth-adjusted multiples aren’t just another financial metric to dazzle (or confuse). Rather, they’re how investors level the playing field when comparing businesses with different growth profiles. If you’ve ever looked at your valuation and thought, “Why is that company trading at a higher multiple when we’re growing faster?”—this is the lens that answers that question.
What is the Growth Adjusted Multiple Formula?
A growth-adjusted multiple is a valuation metric that divides a company’s standard multiple (like EV/Revenue or EV/EBITDA) by its growth rate. The result shows how much investors are paying for each percentage point of growth—a clearer, more comparable measure of value.
Formula:
Growth Adjusted Multiple Formula = Valuation Multiple ÷ Growth Rate
For example, if your EV/Revenue multiple is 12 and you’re growing at 40% year-over-year, your growth-adjusted revenue multiple is:
12 ÷ 40 = 0.30
That “0.30” number lets investors compare your growth efficiency to other companies, regardless of raw size or scale.
What is a Growth Adjusted Revenue Multiple?
The growth adjusted revenue multiple is one of the most widely used tools in growth-stage and public market investing, particularly in software companies. It normalises the EV/Revenue multiple by dividing it by the company’s NTM revenue growth (next twelve months). This reveals how aggressively the market is pricing future revenue potential.
Formula:
EV / Revenue ÷ NTM Revenue Growth Rate
Example:
Company A:
- EV/Revenue = 10x
- NTM Revenue Growth = 25%
- Growth Adjusted Revenue Multiple = 10 ÷ 25 = 0.40
Company B:
- EV/Revenue = 8x
- NTM Revenue Growth = 10%
- Growth Adjusted Revenue Multiple = 8 ÷ 10 = 0.80
Despite having a lower EV/Revenue, Company B looks more expensive on a growth-adjusted basis. Investors are paying more for each point of growth.
What is a Growth Adjusted EBITDA Multiple?
The growth adjusted EBITDA multiple applies the same logic to EBITDA—a measure often used in more mature companies or capital-intensive sectors.
Formula:
EV / EBITDA ÷ EBITDA Growth Rate
This metric is useful when revenue alone doesn’t reflect the efficiency or cash-generating ability of a business. It’s particularly relevant when EBITDA margins are expanding or when growth is being funded efficiently.
What is the ERG Ratio?
The ERG ratio (Enterprise value to Revenue over Growth) is another name for the growth adjusted revenue multiple. It gained traction in SaaS investing circles as a shorthand for this concept, and is particularly useful when comparing software companies across public and private markets.
Formula:
EV / Revenue ÷ Revenue Growth = ERG Ratio
Whether you call it a growth-adjusted multiple or an ERG ratio, the principle is the same: investors want to know what they’re paying for growth—and whether it’s worth it.
From my days on the buy side, I can tell you: we used these metrics constantly to filter through “expensive-looking” companies and find the ones truly delivering value. Without growth adjustment, your multiple is just a number. With it? It’s a story investors can compare, quantify, and buy into.
What Really Moves the Multiple – Growth Quality & Communication
Not all growth is created equal. And investors know it. That’s why even two companies with identical growth rates and valuation multiples can trade very differently once you factor in growth quality and how that story is told.
Here are the key drivers that influence how your growth-adjusted multiple is interpreted:
1. Quality of Growth
Investors aren’t just looking at the top line—they’re assessing how durable and efficient your growth is. Here’s what stands out:
- Gross margin: High margins suggest pricing power and operational efficiency.
- Cash flow: Growth that generates—or at least leads to—positive cash flow is worth more than growth funded by perpetual burn.
- Customer retention & expansion: Companies that land and expand signal predictable compounding over time.
I’ve evaluated companies with 30% YoY growth that traded below their peers—because that growth was unprofitable, erratic, or dependent on short-term spikes. Growth quality drives confidence, and confidence drives multiples.
2. Predictability Over Hype
Investors prefer a reliable 20% to a risky 40%. If your growth rate has fluctuated wildly over the past three years, the market will assign a discount, no matter how exciting your current results look.
3. Strategic Positioning & Moats
Being a market leader with a clear edge—distribution, IP, switching costs—can help lift your adjusted multiple. Investors want to know: can this company defend and extend its growth?
4. Investor Communications
This one’s often overlooked, and yet, it’s the fastest lever you can pull. I’ve seen companies with average fundamentals trade at premium multiples simply because they told a better story.
And I’ve seen the opposite: a company with incredible growth, strong retention, and clean financials—but whose messaging was flat, defensive, or inconsistent. Their multiple lagged for years.
Investors don’t just buy numbers. They buy narratives. And when your investor relations strategy showcases quality, predictability, and a defensible future, your growth becomes more than a stat—it becomes investable.
From Insight to Action – Building Internal Alignment
Understanding growth-adjusted multiples is one thing. Getting your leadership team, board, and investor relations crew to rally behind it? That’s where the real work starts.
For CEOs and CFOs, the conversation often begins in a boardroom, with a slide showing share price stagnation—and your management asking why. This is your moment to reframe the problem:
“We’re not undervalued because we’re underperforming—we’re undervalued because we’re being evaluated on the wrong basis.”
You’re not selling a new metric. You’re reframing the narrative investors use to value you. You’re giving your team the language and logic to justify a higher multiple—one that reflects the quality, durability, and trajectory of your growth.
Talking Points That Move the Needle:
- “The Street doesn’t need more data—they need help understanding our growth story.”
- “Our IR materials report results. They don’t teach investors how to model our future.”
- “If we want to trade like a market leader, we need to communicate like one.”
Objections You’ll Hear—and How to Counter:
- “Our IR team is already stretched.”
This isn’t about adding more work. It’s about doing less, more strategically—with outside insight that supports them.
- “This will confuse investors.”
On the contrary, it clarifies the narrative. Growth-adjusted multiples are already used on the buy side. This puts you in their language.
- “This sounds expensive.”
So is continued undervaluation. A small investment in IR strategy can drive millions in shareholder value.
This isn’t a replacement for your internal IR team—it’s an upgrade. Strategic investor communications, backed by investor-grade insight, strengthens what you’ve built. And it gives the market the context they’ve been missing.
Translate Growth into Valuation
Growth-adjusted multiples don’t just measure performance—they shape perception. But only if you use them.
Investors already think in these terms. The real question is: are you speaking their language?
You’ve got the growth. You’ve got the numbers. Now it’s time to align your narrative with the metrics that matter—so investors can see the value you’ve built and price it accordingly.
Let’s make sure your story earns the multiple it deserves.
Schedule a call with us to get started.
FAQs
Q: What is a growth-adjusted revenue multiple?
A: A growth-adjusted revenue multiple divides a company’s EV/Revenue by its revenue growth rate, revealing what investors are paying for each point of growth.
Q: How do you calculate a growth-adjusted EBITDA multiple?
A: Divide your EV/EBITDA by EBITDA growth rate. This shows how efficiently the market is valuing your profit expansion.
Q: What is the ERG ratio?
A: The ERG ratio (Enterprise value to Revenue over Growth) is another term for the growth-adjusted revenue multiple, popular in SaaS and high-growth investing.
Q: Why do investors use growth-adjusted multiples?
A: They help compare companies with different growth rates on a level playing field—showing which companies deliver the most value per unit of growth.
