Growth Metrics for Wheel Strategy Stock Screening

Earlier in this series, I wrote an entire article telling you to avoid high-growth stocks. Now I’m going to tell you growth is non-negotiable.

Contradictory? Both are actually true.

The high-fliers I warned you about are names where growth is the entire story: no profits, an extreme valuation, a price that assumes perfection. Past a point, growth stops being a tailwind and becomes the volatility that breaks the Wheel.

But zero growth fails you from the opposite direction.

Run the Wheel Strategy on a stagnant business and every cycle restarts exactly where the last one ended. Thin premium, sideways chart, capital grinding in place. In value stocks vs. growth stocks, I called that the treadmill.

What you want sits between the two — a real, profitable business that’s steadily getting bigger.

The following three metrics measure exactly that:

1. Trailing revenue growth
2. Trailing EPS growth
3. Forward revenue growth

Revenue growth tells you the business is expanding. EPS growth tells you the expansion is reaching the bottom line. Forward growth tells you whether it’s expected to continue.

Why Growth Is the Tailwind

In my stock selection framework, growth is the third of four pillars:

1. Valuation
2. Profitability
3. Growth (you are here)
4. Upward Revisions/Forward Guidance

Valuation told you whether the price is right. Profitability told you whether the business is any good.

Growth asks what comes next: is the business getting bigger?

Recall that selling a cash-secured put is a standing offer to buy 100 shares on assignment and potentially hold them for months.

In a growing business, that’s a comfortable place to wait. Each Wheel cycle restarts on a stock worth more than the last time you came back to it, and the growth keeps implied volatility (and your premium) healthy along the way.

In a stagnant business, you’re collecting thin premium on dead capital.

I work through growth as three questions:

1. Is the business actually getting bigger? (revenue growth)
2. Is that growth reaching the bottom line? (EPS growth)
3. Is the growth expected to continue? (forward revenue growth)

Let’s dive in.

Question 1: Is the Business Actually Getting Bigger?

Revenue growth over five years is the average annual rate the top line has expanded. This is the most basic possible signal that a business is getting bigger.

The widely used floor is about 5% a year, which also happens to be where I draw my own line.

Below that, a business is treading water. It isn’t compounding, and after inflation it’s barely growing at all.

Quality businesses grow.

How come we measure five years instead of the latest one? Consider that a single year can be a cyclical peak, a flattering comparison against a weak prior year, or a plain fluke.

A multi-year rate shows you a trend. A one-year rate shows you a headline.

And the trend is what the Wheel cares about. On a growing business, each cycle restarts on a stock worth more than it was the last time around. If you’re assigned, you spend the covered-call phase holding a business that’s still expanding underneath you.

That’s the difference between compounding and the treadmill.

Revenue Growth (5Y) Examples

Let’s walk through an example:

Note: The five tickers below surfaced in the weekly quality screen I run for my own portfolio and for WheelMetrics Pro. None of these values are “secret” and all come straight from company filings. Any decent data provider will hand them to you. Treat the figures as a snapshot from the week I ran the screen. They’ll have drifted by the time you read this. But how to read them is what this article is about.

CLS and MU are expanding fast, each roughly a fifth larger every year.

AIR and NESR sit comfortably in double digits.

And IFS at 6% just clears the floor. That’s fine. Modest but real growth still counts.

IFS may look like the runt of this group, but hold any judgement, because it’s about to punch above its weight.

Question 2: Is That Growth Reaching the Bottom Line?

EPS growth over five years is the average annual rate earnings per share have grown.

Recall that revenue is the top line. EPS is what actually reaches you, the owner, after costs, interest, taxes, and changes in the share count.

Revenue growth without EPS growth just means the company is running a bigger business at the same or worse economics.

Bigger, not better.

The rule of thumb here is about 7% a year. Again a widely used floor, and again where I set my own.

When performing your own analysis, don’t fixate on revenue growth and EPS growth in isolation. What’s more interesting is the gap between them.

When EPS Grows Faster Than Revenue

Examine the following table:

Four of the five names grow earnings faster than sales.

But CLS is an outlier: EPS is compounding at three and a half times the pace of revenue.

That’s usually good news. It points to operating leverage, expanding margins, or buybacks. This means each new dollar of revenue carries more profit than the last, or fewer shares are splitting the pie.

If you read my previous article on profitability metrics, then you know CLS runs structurally thin margins. And when thin margins widen even slightly, earnings multiply far faster than sales.

But before you trust the number, find out why it happened…and whether the “why” repeats itself.

A one-time cost cut, a single large buyback, or a recovery off a depressed base can all flatter a five-year EPS rate without saying anything about the next five.

Note: MU deserves an asterisk here. Micron’s earnings leverage is real, but it’s partly a memory-cycle upswing. It’s a cycle, not a permanent step-change.

When Revenue Grows Faster Than EPS

NESR grew revenue 11% a year. That’s perfectly respectable, mid-pack in this group. EPS only grew 3% though, meaning the business sells more every year and keeps almost none of it per share.

Two culprits cause that pattern:

1. Compressing margins: The company is buying its growth, either by cutting prices or absorbing rising costs
2. A rising share count: Dilution from acquisitions or stock compensation, splitting the profits across ever more shares

The second is the classic inorganic-growth trap. Acquisitions can pump the top line for years while the shares issued to pay for them quietly shrink your claim on the profits.

You want growth the business generated itself, not growth it bought. The revenue-vs-EPS gap is how you catch the difference.

If you’re assigned when running The Wheel, you don’t own “the company” in the abstract. You own shares, and per-share earning power is what shares are worth.

A business growing revenue without growing EPS is getting bigger without getting more valuable to you.

Question 3: Is the Growth Expected to Continue?

Forward revenue growth is the analyst consensus for next year’s top line (i.e., where the people who model these companies full-time expect sales to land).

Trailing growth tells you what happened. Forward growth tells you whether it’s still happening.

As a floor, I want roughly 7% or better.

Forward Revenue Growth Examples

But the 7% floor is the least useful read here. The more useful read is examining the trajectory:

• Accelerating: MU jumps from 18% trailing to a 60% forward estimate, the memory upcycle pulling next year far above its multi-year pace; CLS, NESR, and IFS all step up too
• Decelerating: AIR slips from 14% trailing to 11% forward, the weakest forward number in the set; the history looks fine, but the trajectory is fading

Deceleration isn’t an automatic disqualifier. It’s a question: what’s slowing, and is it temporary?

But it’s a question the trailing number alone would never have made you ask. That’s the entire value of the forward column.

How Do You Judge a Young Company With No Track Record?

Some stocks are too young to have a five-year history at all, but can still make good Wheel candidates.

CRDO is a great example. It’s a name I’ve wheeled repeatedly this year, but since it IPO’d back in January 2022, it does not yet have a 5 year history.

But what it does have: forward revenue growth north of 40%, real profitability, and zero debt.

That’s the playbook for a young grower: lean on the forward estimate, then make the profitability pillar do the heavy lifting. It’s exactly why a quality young company passes the screen while a story-only high-flier doesn’t.

Two Cautions Before You Trust a Forward Number

First, a forward number is an estimate, and estimates move.

Whether analysts are raising or lowering those estimates over time (and what management’s own guidance is signaling) is a separate read entirely. It’s the fourth pillar of the framework, and it gets its own deep-dive, which we’ll cover in the next article.

Second, more forward growth isn’t linearly better.

Past a point, like the the 30%-plus, priced-for-perfection names, growth itself becomes the high-growth volatility that breaks the Wheel.

A 60% forward number on a profitable business in a cyclical upswing (MU) is a different animal from 60% on a profitless story stock.

You want a strong, believable trajectory; not the highest number on the screen.

Reading Growth Together (and Why Growth Alone Is a Trap)

Let’s analyze each of these stocks:

• MU: Growing, converting to per-share earnings, and accelerating hard; a genuine tailwind, cyclical caveat and all
• CLS: Fast top line, explosive bottom line, strong forward; the compounder profile, once you’ve confirmed the leverage is durable
• IFS: Modest, real, reaching the bottom line, expected to continue; proof you don’t need a flashy number, you need to clear the threshold
• NESR: Revenue growing, EPS barely moving; not creating per-share value until you can explain why
• AIR: Respectable history, fading trajectory; sit this one out

The two caution rows fail in completely different ways:

• NESR has growth that isn’t reaching you.
• AIR has growth that may be ending.

Neither is an automatic no, but you should seek to understand why before your capital goes anywhere near a strike on those names.

One last warning, and it’s the most important one in the article:

Growth is the most dangerous pillar to over-weight.

A spectacular growth rate attached to no profits and an extreme valuation is the high-flier profile that breaks the Wheel, and the source of most meme-stock premium, especially if the growth is primarily narrative driven (which, on high-growth meme stocks, it often is).

Always remember that good growth is profitable growth at a reasonable price.

That’s why this pillar only works bolted to the other two I’ve previously covered:

1. Profitability confirms the growth is real
2. Valuation (through the PEG ratio I covered), confirms you’re not overpaying for it

Growth Is the Tailwind, Not the Whole Trade

1. Valuation answers: is the price right?
2. Profitability answers: is the business any good?
3. Growth answers: is it getting bigger for real, at the bottom line, and with the trend intact?

Growth turns the Wheel from a treadmill into a compounder. But a tailwind is only an edge if the business underneath it is real.

One pillar remains: analyst revisions and forward guidance. Forward estimates are moving targets, and whether they’re being marked up or down is a signal all its own.