In my post on Dividends are Not the Best Investment I mentioned that I like growth stocks for my retirement portfolio. In full transparency I’ve made this portfolio public. Below are my costs and shares.

Rule of 40 Chart

The Rule of 40 is a metric that allows us to try to model at least some of the variance in the prices of SaaS stocks. It uses Revenue Growth + Free Cash Flow Margin as an estimator. The regression line shows a relatively high coefficient of determination at .62, meaning that approximately 62% of the variation in EV/Sales can be explained by the equation making it a very good starting point for understanding valuations of these companies.

Too Much SaaS Course

If none of this makes sense, I’m preselling a course on SaaS investing here to help explain how I approach growth stocks generally. It will include some insider perspective as an engineer in the leadership team of a growing SaaS company that eventually sold for over half a billion dollars.