The Rule of 10: Can This Simple Strategy Help You Find the Next Stock Market Winners?
Investing in stocks with high growth potential is challenging. With thousands of companies in the market, how do you pick the ones that are likely to outperform? Many investors follow traditional metrics such as earnings growth, profitability, and valuation ratios. However, Goldman Sachs Group, Inc. (GS) has developed a simpler approach—the “Rule of 10.”
This strategy focuses on identifying stocks that consistently achieve at least 10% revenue growth each year. According to Goldman Sachs, companies that meet this criterion have a higher probability of delivering strong returns in the long run. In 2025, only 21 companies in the S&P 500 qualify under this rule.
But how does the Rule of 10 work? And more importantly, can it help investors find the next big winners in the stock market?
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What Is the Rule of 10 and Why Does It Matter?
Goldman Sachs introduced the Rule of 10 after analyzing what made today’s most successful stocks stand out. Their research focused on the “Magnificent Seven”—Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), NVIDIA (NVDA), and Tesla (TSLA).
These companies have consistently demonstrated exceptional revenue growth, which has contributed to their strong stock performance over time. With this insight, Goldman Sachs designed a screening tool to identify other companies that might follow a similar trajectory.
In simple terms, the Rule of 10 helps filter out companies that are merely surviving and highlights those that are thriving and expanding at a rapid pace.
How Does the Rule of 10 Work?
To be included in Goldman Sachs’ Rule of 10 list, a company must meet three key conditions:
- It must be part of the S&P 500 Index.
- It must have achieved at least 10% revenue growth in the past two years.
- It must be projected to grow revenue by at least 10% in the current year, next fiscal year, and the year after that.
This means that a company needs a strong track record of revenue expansion and promising growth forecasts for the future.
By using this simple yet effective rule, Goldman Sachs aims to identify companies with the potential to outperform the market over time.
Why Does Revenue Growth Matter More Than Other Metrics?
Traditional stock analysis often focuses on earnings per share (EPS), profit margins, and price-to-earnings (P/E) ratios. While these indicators are useful, they don’t always reveal a company’s true growth potential.
Revenue growth, on the other hand, is a direct reflection of a company’s ability to scale its business. Here’s why it matters:
- Sustained revenue growth often leads to higher earnings in the long run.
- Companies expanding their top line typically gain market share and improve their competitive position.
- Investors reward high-growth companies with higher valuations, leading to greater stock price appreciation.
For example, stocks like NVIDIA, Amazon, and Tesla saw massive gains over the years, primarily because their revenues kept expanding at double-digit rates.
By focusing on revenue growth, the Rule of 10 shifts the attention from short-term profits to long-term business expansion.
Final Thoughts
The Rule of 10 is a powerful framework for identifying stocks with strong growth potential. By focusing on consistent revenue expansion, it highlights companies that may have the potential to become the next stock market leaders.
However, no single strategy guarantees success. The Rule of 10 should be used as a starting point for deeper research, helping investors find high-growth opportunities while still considering other key financial metrics.
So, is this method worth using? If you’re looking for stocks with long-term growth potential, the Rule of 10 could be a valuable addition to your investment strategy.
