Earnings may not be the only important
indicator of the
current strength of a
company but they certainly provide useful
information to help in the decision-making
process. The CANSLIM
stock strategy requires a careful
analysis of the most recent
earnings per share (
EPS) reported by the company. Not only should those earnings be higher than they were in the same
period the year before, they should be trending upward on an
annual basis as well (in other words, one
quarter of
substantial growth is not enough and could very well be some sort of
anomaly). A CANSLIM stock strategist generally likes to see current earnings rise by 20% or more before considering a company to be a
viable investment option. However, much larger increases are always welcome. In the years between 1953 and 1993, nearly 75% of the
top 500 best performing stocks (not the
S&P 500) experienced an earnings increase of an
average of 70% prior to significant rise in stock prices.
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