📖Benjamin Graham

Earnings Growth

🌿 Intermediate★★★★☆

Require at least one-third earnings growth over ten years to confirm the business has genuine forward momentum.

💬

There should have been an increase of at least one-third in per-share earnings over the past ten years.

— _The Intelligent Investor_，1949

🏠 Everyday Analogy

Just as assessing a person's physical fitness isn't solely about how fast they run today, but rather whether their weight has increased reasonably and their muscles have grown stronger over the past decade, the same principle applies to a company's earnings per share. If it grows by at least 33% over ten years, it indicates that the company resembles a healthy, growing individual—possessing sustainable profitability.

📖 Core Interpretation

Over the past decade, earnings per share have grown by at least one-third.
💎 Key Insight：This growth requirement ensures you are not buying a stagnant or declining business. A one-third increase over a decade translates to roughly 3% annual growth, a modest bar that filters out deteriorating companies while remaining achievable for solid enterprises. It confirms minimum vitality without demanding speculative growth rates.

AI Deep Analysis

Get personalized insights and practical guidance through AI conversation

❓ Why It Matters

Profit growth is an indicator of a company's healthy development.

🎯 How to Practice

Calculate the 10-year earnings growth rate to identify companies with sustained growth.

🎙️ Master's Voice

A record of continuous growth in earnings over ten years is a strong indicator of inherent stability.
Graham observed that companies with consistent earnings growth demonstrated operational excellence and competitive advantages that protected them during economic downturns.

⚔️ Practical Guide

✅ Decision Checklist

  • Calculate 10-year EPS compound annual growth rate
  • Verify earnings growth is from operations, not accounting changes
  • Check for consistency - avoid companies with erratic earnings
  • Compare growth rate to industry peers

📋 Action Steps

  1. Pull 10 years of annual EPS data from financial statements
  2. Calculate year-over-year growth rates
  3. Identify any years with earnings declines and investigate causes
  4. Set minimum 33% total growth as screening criterion

🚨 Warning Signs

  • Earnings growth driven by acquisitions rather than organic growth
  • Declining growth rate trend in recent years
  • Heavy reliance on non-recurring items
  • Growth funded by excessive debt

⚠️ Common Pitfalls

✕Growth does not need to occur every year.
✕However, the long-term trend should be upward.

📚 Case Studies

1
Coca-Cola Valuation Discipline (1997)
Graham-style analysis showed strong historical earnings growth but an excessive P/E. A value investor avoided overpaying despite market enthusiasm.
✨ Outcome：Stock underperformed for years after 1998 peak, validating focus on earnings growth at a reasonable price.
2
Johnson & Johnson Steady Compounder (2001)
Consistent double-digit earnings growth, strong balance sheet, and reasonable valuation matched Graham’s emphasis on predictable earnings power.
✨ Outcome：Long-term holder from 2001 enjoyed substantial price appreciation and rising dividends over the next two decades.

See how masters handle real scenarios?

30 real investment dilemmas answered by legendary investors

Explore Scenarios →