The stress test for technology growth stocks: revenue growth plus free-cash-flow margin must reach at least 40 combined, automated across the entire technology sector.
Save the strategy and StockScorer checks its rules for you every day. You'll get a heads-up whenever a stock crosses the upper or lower score threshold.
MSCI World over the same period: +240.1 %
Past performance is not a reliable indicator of future results.
| Score | Number of stocks |
|---|---|
| -5 | 4,382 |
| -4 | 0 |
| -3 | 503 |
| -2 | 3,910 |
| -1 | 0 |
| 0 | 3,183 |
| +1 | 1,865 |
| +2 | 0 |
| +3 | 653 |
| +4 | 1,769 |
Every stock runs through the same disclosed rules. The points add up to a score, traceable down to the individual rule.
Each rule checks a metric against a threshold, for example ROE above 15 %.
You decide how much each rule counts: from +1 to +3 or −1 to −3.
The sum is the score. That gives three classes: high, medium, low match.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
Year-over-year revenue growth is the first half of the 40 sum.
The FCF margin shows whether growth generates or burns cash, the second half of the sum.
Only a sum of 40+ satisfies the rule; 25–40 counts as healthy, below 10 as a warning sign.
Negative revenue growth costs 3 points, the strategy's harshest deduction.
These exact rules run over every stock daily.
After a free sign-up: the full profile in the rule editor to copy, adjust thresholds and save as your own starting profile.
See & copy all rulesThe backtest shows a total return of +192.0%. The MSCI World reaches +240.1% over the same period.
Survivorship-free since June 30, 2015: the index composition is applied point-in-time.
Historical period, quarterly rebalancing, no taxes or fees. Past performance is not a reliable indicator of future results.
Purely mechanical rule application, no curated-list effect: stocks with a high match can fall just like any other stock.
For growth-oriented investors who want to weed out loss-makers without giving up momentum. The strategy is restricted by rule to software industries with at least €50 million in revenue, where the Rule of 40 is calibrated; outside it, a knockout filter treats stocks as not applicable.
The Rule of 40 comes from the venture-capital world (popularised by investor Brad Feld in 2015) and is the established yardstick for software business models: heavy losses are acceptable as long as growth justifies them, and vice versa. StockScorer therefore applies it exclusively to the software industries via a knockout rule (application and infrastructure software, IT services, internet content, gaming), no longer to the coarse technology sector, which would also sweep in hardware and semiconductors; outside these industries, a stock is treated as not applicable. A second gate requires at least €50 million in revenue: Feld formulates the rule explicitly for companies "at scale", not early-stage startups. It computes the sum of revenue growth (year over year) and FCF margin as a genuine arithmetic criterion. From 40 points the rule counts as met, from 50 as efficient hypergrowth. Shrinking revenue is punished drastically: a growth company that shrinks loses its reason to exist as a growth stock.
Two knockout gates bound the universe: software industries only (application and infrastructure software, IT services, internet content, gaming) and a minimum revenue of €50 million. At the core then sits a single arithmetic criterion: revenue growth (in %) plus FCF margin (in %). A sum of 50 or more earns +4 points, 40–50 +3, 25–40 +1. Below 10 (stagnation or cash burn without growth to compensate) costs 2 points, and shrinking revenue another 3.
That yields a range from −5 to +4 points. The upper threshold is a uniform 3 points across all size classes, reachable only if the Rule of 40 is genuinely met. A company with 30% growth and a −5% FCF margin (sum 25) stays in the middle zone: dynamic, but not yet efficient enough.
Universe gates: software industries only, and revenue ≥ €50 million (both knockout).
Sum ≥ 50: hypergrowth with high capital efficiency (+4).
Sum 40–50: the golden Rule of 40 is met (+3).
Sum 25–40: healthy growth with mild inefficiencies (+1).
Sum below 10 or not computable: stagnation or cash burn (−2).
Revenue growth negative: strategic warning signal (−3).
Its strength is balancing the classic growth dilemma: pure revenue growth rewards cash burners, pure margin punishes investment in growth. The sum allows both, as long as the mix works.
Limits: since the 23 August 2026 fidelity round, an industry gate narrows the universe to software industries instead of the coarse technology sector, which also swept in hardware and semiconductors; the data still doesn't support a finer SaaS-only cut. Outside the industries, a stock counts as not applicable. Cyclical revenue jumps can also distort the sum in the short term, even within the universe; the cap thresholds are unified since the round, because the 40 line applies regardless of size.
For growth investors with an elevated volatility tolerance who only accept growth when it comes with capital efficiency.