Maximizing shareholder value in a sustainable, socially acceptable way is one of the ultimate goals of management teams for public companies. In the near term, management tends to have a menu of options to create shareholder value including:

1. Cost cutting: the profitability of the business can be improved by reducing headcount and slowing down capital investments.
2. Financial engineers: leveraging up the balance sheet to do share repurchases, which boosts near-term earnings or pays out dividends.
3. Growing top line organically by raising prices or growing volume growth.
4. Growth by acquiring other companies.

There is a limit on the amount of expenses a company can cut. Although running a lean operation is crucial, focusing too much on cost-cutting at the expense of customer experience could be costly for shareholders over time. In addition, leveraging may boost earnings or shareholder returns in the near term, however, leverage is a two-edged sword, and too much debt can put companies at risk of going under if management does not manage the debt profile prudently.

We think over the long term, revenue growth is the highest quality lever to create shareholder value. Growth is valuable, some companies are even willing to sacrifice present profitability to optimize for long-term growth rates, the classic case of this phenomenon is Amazon (AMZN) as the company chose to reinvest aggressively back into growing the business. As a result, shareholders are rewarded handsomely.

We tend to prefer companies that can grow organically especially ones that are run by management with a long-term mindset of balancing between price adjustment and volume increases to drive sustainable organic growth over time. Although growth through acquisitions is fine, investors need to make sure those companies are run by management teams that possess a decent track record so that the investors can trust the allocation of capital (think of Constellation Software – CSU, The Descartes Systems Group - DSG or Alimentation Couche-Tard – ATD, etc ).

That being said, picking companies that can sustainably demonstrate strong topline growth year after year is not easy, as that subset of companies that can achieve this record in the public market is few and far between. It is mainly because capitalism is brutal and very few businesses are strong enough to withstand the pressure of competition because strong growth tends to attract competition, especially in industries with low barriers to entry.

Below we have screened for companies with the following criteria:

• Revenue 10-year compounded annual growth rate (CAGR) of at least 12%
• Market cap larger than $100 million
• Positive earnings before interest and tax (EBIT)
• Estimated 3-year revenue growth CAGR of at least 12%

The criteria above reflects companies that have grown their revenue at least at a 12% compounded annual growth rate (CAGR) in the last 10 years, and at the same time are expected by the consensus to continue to grow at least 12% over the next few years. A combination of these two is a really high bar to achieve. To be conservative, we only screen for companies with positive EBIT margins, although these companies are not optimized for current profitability yet. We think it is a safer bet overall to seek companies that already demonstrate they can be profitable. As usual, we prefer companies that are over $100 million in market cap, as these companies already establish track records for investors to assess and have proven themselves to be more mature, self-sustainable entities.

This consistency in revenue growth demonstrates the resiliency of the business model. Additionally, these companies also tend to possess other favourable competitive advantages that are difficult for competitors to copy, and therefore, they are able to sustain their high growth rates. The group of companies where investors can have a high level of visibility into future demand is also rare. As a result, buying and holding a small subset of high-quality growth names can be a decent way to build wealth.

Members will recognize some of the names that we cover in our Model Portfolios and coverage lists such as Shopify (SHOP), Aritzia (ATZ) and Constellation Software (CSU).

Lastly, these companies on the list are not recommendations, but rather a starting point that helps investors generate potential investment ideas.

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Employees, directors, officers, related companies, the i2i Fund and/or partners of 5i Research hold a financial or other interest in AMZN at the time of publishing.