CAGR answers the question: at what constant annual rate should an indicator have grown to progress from its initial value to its final value over the period in question. The calculation is performed by dividing the final value by the initial value and extracting the root by the number of years.
The main advantage is smoothing. An indicator that grew 40% over three years, then fell 20% and grew again, is described by a single comparable value, which is convenient when comparing companies and instruments with different dynamics.
This is also its limitation. CAGR masks fluctuations within the period: two investments with the same average annual rate could have had completely different risk levels. Evaluating results based on it without considering volatility is incorrect.
The second limitation is sensitivity to period boundaries. The calculation depends only on the first and last values, so choosing the starting year can significantly change the result. When studying data presented in this form, it is worth checking which period was selected and why.