Unlocking the CANSLIM Strategy: The Power of Current Quarterly Earnings

Hey everyone, Richard here from Traderlion.com! Today marks the beginning of our exciting CANSLIM investing series, where we’ll be diving deep into the main components of the CANSLIM growth stock trading strategy. In this video, we'll focus on the very first letter, **C** in CANSLIM, which stands for Current Quarterly Earnings.

What is CANSLIM?

If you're new to CANSLIM, let me break it down for you. Developed by William O'Neil, the founder of Investor's Business Daily, CANSLIM is a proven methodology designed to identify stocks with high growth potential. These stocks can soar with incredible runs of 200% to 10,000% over weeks, months, or even years! O'Neil meticulously analyzed the best-performing stocks throughout time to pinpoint the traits they shared during their phenomenal growth phases.

The Importance of Current Quarterly Earnings

Now, let's zoom in on the C in CANSLIM. To adhere to the CANSLIM strategy, we seek a base growth of at least 25% in quarterly earnings compared to the same quarter one year earlier. The trend observed over a stock's lifecycle frequently mirrors its quarterly earnings trend.

For example, let's take a look at Apple Inc. from 2008 to now. As shown in the charts:

• Stock Price Trend: The stock price has steadily advanced.
• Quarterly Earnings Trend: The quarterly earnings have also shown consistent growth.

Notice how the stock price follows the trend of quarterly earnings. While a minimum growth rate of 25% is key, aiming for 50%, 100%, or even 200% growth rates can catch Wall Street off guard, leading to significant increases in stock prices as investors pile in.

Real-World Example: Digital Turbine Inc.

Let's take a closer look at Digital Turbine Inc. (ticker symbol: APPS). Here's a snapshot of its impressive earnings growth over the past four quarters:

Over this period, the stock price of Digital Turbine surged from below 10% to over 100%. This incredible performance can be directly tied to their remarkable earnings growth—an excellent testament to how CANSLIM can be beneficial in identifying top-performing stocks.

Holistic Company Performance

However, don’t just stop at earnings growth! To gain a comprehensive understanding of a company's performance, you should consider two additional factors:

• Sales Growth: Ensure that earnings growth is not a facade. If earnings are rising while sales stagnate or decline, red flags might be flying.
• After-Tax Margins: This tells you how well a company is operating. Healthy margins suggest efficiency and profitability.

A stock’s growth can become compelling when you see acceleration across the board in earnings, sales, and after-tax margins, just like we observed with Digital Turbine.

Watch for Earnings Surprises

Additionally, be on the lookout for earnings surprises. Prior to earnings announcements, analysts predict performance by running estimates. If a company can exceed these estimates consistently, it can lead to dramatic stock price increases, much like what we saw with Digital Turbine.

In Summary

As a recap of what we discussed today:

• Seek at least 25% growth in quarterly earnings compared to the same quarter last year.
• Ideally aim for 50%, 100%, or even 200% growth to really stand out.
• Assess sales growth and after-tax margins to ensure organic growth.
• Keep an eye on earnings surprises and “beat and raise” quarters for optimal stock performance.

That’s a wrap for today’s video! Thank you all for tuning in. If you enjoyed this content, don't forget to hit the like button below and subscribe to our channel for more updates. I can’t wait to see you in our upcoming videos!