A participant practice his yo-yo techniques during the International Yo-Yo Competition at South Street Seaport in New York August 9, 2008. REUTERS/Joshua Lott It’s been a very strong earnings season for US companies. But for many, it’s becoming much more challenging to expand profit margins. In a tougher environment, we think investors should focus more closely on revenue growth to find stocks that can thrive.

More than 75% of US companies have already reported second-quarter earnings. Revenues for S&P 500 companies have climbed by about 5% while earnings were up more than 10%, according to Bloomberg data. Both of these numbers are higher than the previous quarter—and the fastest earnings growth since early 2012.

Profitability trends warrant some scrutiny. Operating profits of S&P 500 companies have grown at an annualized rate of more than 20% over the past five years, based on data for the first quarter. This marks a sharp recovery from the recession trough. Sales have been much weaker. According to the same data, sales per share have grown at less than 5% per year, even off the depressed base.

Profitability at a Peak

As a result, profit margins have soared. Net profit margins more than doubled from 4.6% in March 2009 to 9.8% at the end of the first quarter. And based on our estimates, margins could come in just shy of 10% when all the second-quarter results are in (Display).

Sounds great, so what’s the rub? The problem is that, historically, margins like these have marked a peak rather than a normal level of profitability. And the factors that have driven margin expansion to date are unlikely to persist.

Margins gains have benefited from three key drivers: labor efficiencies, lower depreciation and amortization, and reduced interest expense. Although we are not forecasting a drop in margins, we think that it has become incrementally more difficult to make further progress on these fronts for several reasons.

Disappearing Margin Drivers

First, the labor market is tighter, which could introduce higher wage inflation. While technology will always be a persistent pressure on labor, with the employee share of revenue at very low levels (Display), it may be much harder for companies to tighten wage costs further. Second, depreciation and amortization have declined because companies have been more conservative allocating capital and certain accounting rules have changed. Since capital spending is likely to rebound over time, we don’t think depreciation and amortization will help buoy margins. Finally, with interest rates near all-time lows, companies can’t really rely on improvements to financing to help boost margins. For context, these three factors have been the biggest drivers of margin growth over the past decade.

In this environment, companies that can benefit from secular revenue growth are poised to do well. For example, MasterCard recently reported 13% revenue growth for the second quarter, more than double the rate of global consumer spending, as cash transactions increasingly shift toward electronic payment. More broadly, we’re looking for industries and companies that are growing faster than the rate of gross domestic product growth. Examples can be found in shale oil production, Internet advertising and the active apparel industry.

Investors should recalibrate their expectations to the new profitability reality. It’s clearly going to be much harder to rely on margin expansion to deliver double-digit earnings growth in the quarters ahead, so revenue growth will be much more important to earnings growth. In this environment, the best defense to slowing margin gains is to identify companies that can beat expectations by delivering secular revenue growth.