Where is the best place to look for multi-baggers?

In last week's article, I looked at what investors could learn from the full list of multi-baggers from Ed's recent study. The evidence was clear: if investors had to pick one factor to look to find future multi-baggers, it would be the potential for rapid sales growth. Although operational leverage also aided strong returns, very few companies multi-bagged without seeing rapid sales growth. Here is the correlation I showed last week:

From this, it appears that investors seeking exceptional returns should simply screen for the fastest-growing companies in the market and invest in those. However, for this strategy to work, rapid historical growth rates would need to continue into the future. The big question is, how likely is this to happen?

Is revenue growth persistent?

The persistence of growth was analysed in a 2001 paper by Chan et al. called The Level and Persistence of Growth Rates. The authors concluded:

While some firms have grown at high rates historically, they are relatively rare instances. There is no persistence in long-term earnings growth beyond chance.

It doesn't look good, but the data used in the study ended in 1997, which was a long time...