Dec. 29 at 7:29 PM
Rule of 40 vs valuation tells a much clearer story than EV/S alone.
This chart plots Rule of 40 score on the x-axis against Forward EV/S on the y-axis.
Higher right is better efficiency. Higher up is more expensive valuation.
What jumps out immediately:
• Rule of 40 > 40% clusters split cleanly by valuation
Some companies deliver strong growth + profitability without demanding premium multiples. Others price perfection.
• EV/S breaks down at the extremes
High-growth SaaS with improving margins often looks “expensive” on EV/S, but reasonable when normalized by efficiency.
Priced for perfection:
$PLTR
$NET
$CRWD
$FICO
EV/S tells you what the market expects.
Rule of 40 tells you what the business is actually delivering.
