It is broadly true that growth is a very strong, if not the strongest, driver of stock valuations. However, the impact of growth depends on its source and nature. There are 4 different types of growth.

Growth due to reinvestment at cost of capital

Cost of capital refers to the opportunity cost due to the next best alternative forgone for your capital. If the reinvestment yield is equal to the cost of capital, it basically implies that every dollar of capital only earns you a dollar of marginal revenue. Growth of this nature has no value and should not affect stock price or intrinsic value.

Growth due to reinvestment at a premium to cost of capital

Reinvestment at a return higher than the cost of capital is a value-add to intrinsic value. This is the ideal form of growth that investors should seek. Conversely, if the company reinvests at an ......