Earnings and the CANSLIM Methodby InvestorGuide Staff
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.