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Reading a CompanyLesson 5 of 5 · The numbers

Reading the numbers

Growth and momentum are not the same thing

Growth is what the business did; momentum is what the stock did. Pythia scores them in separate pillars so a good company in a drawdown is not mislabelled as a bad one.

7 min readBeginnerLast checked against the product on

Two clocks, deliberately separate

Growth metrics are computed from filings: revenue, earnings and free cash flow compounding over three or five fiscal years. They are backward-looking, audited, and slow.

Momentum is computed from prices: what the stock has done over the past year. It is forward-looking in the sense that markets are, unaudited, and fast.

Merging them into one "is this doing well?" number would be a category error. A business can compound revenue at 20% while its stock falls 40% because expectations were higher still. Both facts are true, and an investor needs them separately.

Why momentum skips the most recent month

The convention is called 12-1: the return over the past twelve months, excluding the most recent one.

That exclusion is not fussiness. Jegadeesh and Titman found that at the one-month horizon prices tend to reverse rather than continue, largely for microstructure reasons — bid-ask bounce, liquidity pressure from recent trading. Including the last month therefore mixes a reversal effect into a continuation signal and blunts both. Skipping it is the standard fix, and it is the convention Pythia's Momentum pillar uses.

The metrics in detail

  • Revenue CAGR (5y)

    Investopedia

    (Ending revenue ÷ Starting revenue)^(1/4) − 1

    Smooth annualized sales growth over five years. Lynch “ten-baggers” often showed sustained double-digit revenue CAGRs early in their run.

    Example

    Revenue grew from $2B to $3.6B over 4 intervals → CAGR ≈ 15.7%.

    One acquisition year can spike CAGR — read footnotes for organic vs inorganic growth.

    How to read it: Pythia Growth pillar uses revenue, EPS, and FCF CAGRs together — not revenue alone.

  • 12-month return (skip last month)

    Investopedia

    Price 21 trading days ago ÷ Price ~252 days ago − 1

    Academic momentum: winners tend to keep winning over 6–12 months, but the most recent month is skipped to reduce short-term reversal noise.

    Example

    Stock up 30% over the past year but flat in the last month → strong 12-1m momentum.

    Down 40% over the year → weak momentum pillar input.

    How to read it: Momentum is a trend signal, not a quality judgment — great businesses can have bad momentum after a scandal or rate shock.

  • % of 52-week high

    Investopedia

    Current price ÷ Highest close in last 252 trading days

    0.95 means trading within 5% of its yearly high; 0.50 means halfway off the peak. George & Hwang show anchoring near highs affects investor behavior.

    Example

    52-week high $100, current $92 → 92% of high (strong relative strength).

    High $100, current $55 → 55% (deep drawdown from peak).

    How to read it: New highs can reflect genuine strength or overheating — combine with valuation pillars.

  • Beta (β)

    Investopedia

    Covariance(stock, market) ÷ Variance(market)

    Historical sensitivity to the broad market. β ≈ 1 moves with the index; β above 1 amplifies swings; β below 1 is calmer (often utilities, staples).

    Example

    β = 1.4 → if the market rises 10%, this stock tended to move ~14% (and vice versa on down days).

    β = 0.6 → defensive tilt vs the S&P 500 over the estimation window.

    How to read it: Beta is backward-looking — business mix change (e.g. adding a volatile segment) may not be captured yet.

  • Dividend yield

    Investopedia

    Annual dividends per share ÷ Share price

    Cash income return from dividends alone, ignoring price appreciation. Very high yields sometimes signal distress (dividend cut risk).

    Example

    Pays $3/year in dividends, stock at $100 → 3% yield.

    Price falls to $50 with dividend unchanged → yield shows 6% — but the cut risk may have risen.

    How to read it: Pair yield with payout ratio and FCF coverage before treating high yield as “income safe.”

Growth without reinvestment is not compounding

A subtle trap: revenue growth is only valuable if the capital producing it earns more than it costs. Growth bought with capital earning 5% while the cost of capital is 9% destroys value, faster the more of it there is.

This is why the Growth pillar looks at reinvestment capacity alongside the growth rates themselves, and why growth is the smallest weight in PAS rather than the largest. It is a real signal that is easy to buy badly.

Momentum is the least comfortable metric here

It has no story. There is no accounting reason a stock that rose should keep rising, and the leading explanations are behavioural — investors underreact to news and then chase.

It is included because the evidence for it is unusually strong and unusually international, and because it is negatively correlated with value: the two tend to be right at different times, which is what makes holding both more stable than holding either. It is also the fastest-decaying signal on this page. A twelve-month-old momentum reading is not a stale value ratio; it is simply no longer the measurement.

Check yourself

4 questions. Nothing is recorded unless you are signed in, and nothing here affects anything else.

1. A business compounds revenue at 20% a year while its stock falls 40%. Which reading is right?
2. Why does the 12-1 momentum convention exclude the most recent month?
3. A company grows quickly, but the capital funding that growth earns 5% while capital costs 9%. What is the growth doing to the value of the business?
4. You find a strong momentum reading that was computed twelve months ago. How should you treat it?

4 questions left. An unanswered question counts as a miss, so the check waits for all of them.

Sources

Further reading