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CANSLIM Growth Stock Investing Strategy | C in CANSLIM | Current Quarterly Earnings #CANSLIM - YouTube
Channel: TraderLion
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Hey everyone, Richard here from Traderlion.com
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and today is the start of our Canslim Investing series where we'll
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be covering the main components of the Canslim growth stock
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trading strategy.
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And in this video, we're going to be focusing on the first letter, the C in
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Canslim, which stands for Current Quarterly earnings.
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And briefly, if you're not familiar with what Canslim actually is, it's
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basically a methodology developed by William O'Neil, the
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founder of Investors Business Daily, to try to identify high
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potential stocks that can go on runs of 200 to 10,000% over the
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course of weeks, months and years.
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And in order to form the strategy, he basically went back in time,
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studied the greatest performing stocks all the way back to the
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found a whole bunch of common characteristics that they shared
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before and during these huge incredible runs.
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And in this video, as I mentioned previously, we're going to be
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talking about the current quarterly earnings.
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And essentially in order to follow the canslim methodology, we
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want to see a baseline growth of 25% in terms of quarterly earnings
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compared to the same quarter one year ago.
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And over the long run, within a stocks lifecycle, the stock's price
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trend really follows the trend of the quarterly earnings.
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As you can see here from Apple on top, we've got the stock price
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advancing for about ten all the way back in 2008 to now at 122.
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And down here we've got the quarterly earnings plot.
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During the same time frame, you can see that the trend of the stock
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price really follows the same trend of the quarterly earnings reports.
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And going back to the slide, we said we want at least 25% growth
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to follow the canslim methodology, but really that's the
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baseline and bare minimum because 50% growth, 100%
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growth, even 200% growth, is really going to catch Wall Street off
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guard and lead a whole bunch of hedge funds, mutual funds and
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other institutions to pile into the stock and drive up the price.
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So moving on, we've got an example here, we've got Apps or
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Digital Turbine Inc.
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And you can see that for the past four quarters down here, it's
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reported stellar growth, 67% in earnings, then 180%, then 200%,
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and now 320%, the most recent quarter.
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And during this time the stocks price has increased from below
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10% to now at one point over 100.
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So really it's followed this incredible trend due to the
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earnings growth and really has shown incredible power to keep
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compounding and produce extraordinary results quarter after
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quarter.
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And it's very important to keep in mind that you shouldn't just look
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at the earnings growth number.
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You want to get a more holistic picture of the company's
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performance.
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And for that you also want to take into account the sales and after
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tax margins.
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This will show you basically is the earnings growth organic and will it
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likely continue?
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Because if, for instance, you saw that the sales numbers were only
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growing at like 10,15 percent while the earnings were growing at
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100%, or even if the sales growth was negative, you might ask
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yourself how are they getting these extraordinary numbers in
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terms of earnings when their sales aren't growing at all?
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Are they cutting out kind of R and D and future investments for the
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benefit of short term earnings which will hurt the company in the
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long run?
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And similarly you also want to take a look at the after tax margins
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because this gives you a sense about how is the company
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performing, how are they operating, are they an efficient
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well oiled machine?
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So take a look at both the sales and after tax margins in addition
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to the earnings growth numbers.
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And if you see acceleration like this quarter after quarter in all kinds of
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three different criteria, this can really lead to a stock price increase
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like we saw with apps where it's an extremely well run company and
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it's selling more each and every quarter and earning more as well.
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And in addition to all this, you also want to be on the lookout for
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earning surprises.
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And what I mean by this is before a company will report all the
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analysts that cover that stock and company will basically run their
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spreadsheets and come up with an estimate of what their earnings
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will be.
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And if the company is able to beat the estimates, that can lead to a
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surprise on Wall Street and dramatically increase the stock's
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price as we saw in its most recent quarter.
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And a company that's able to kind of beat earnings over and over as
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accelerating their company and services faster than the analysts
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can predict, is going to dramatically increase their stocks
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price as we saw from apps here, we had his first earnings gap up
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based on an earnings surprise all the way back here and we had a
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whole bunch of other earnings gap ups over the course of this run.
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So really pay attention to earning surprises and also beat and raise
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quarters quarter after quarter.
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So in summary, we want to see at least 25% growth comparing that
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quarter to the same quarter one year ago.
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And ideally we want to see 25% growth or better 50% growth,
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100% growth is preferred.
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And in addition to the raw earnings growth numbers, we also
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want to see sales growth numbers improving as well as margins
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improving, supporting that organic growth.
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And finally we also want to see kind of beat and raise quarters as
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well as earning surprises which can catch Wall Street off guard.
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So that's pretty much it for the video.
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Thank you guys so much for watching.
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If you did enjoy, please go ahead and leave like down below and
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subscribe if you are new and Ill see you guys in future videos.
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