Growth expectations can be especially impactful for software valuations because software firms are often still in the higher growth phase of their business cycle and because growth is indicative of the strength of their product and their ability to keep scaling. Comparing expected revenue growth with price/sales multiples reveals that, all else being equal, investors pay a premium for software companies that are growing faster. Other factors, such as margins, still matter, particularly as a company matures, but as investors dig into the software space, they’ll want to pay close attention to growth expectations.

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