CAN SLIM is a mnemonic developed with William J ONeal, the founder of Investors Business Daily (IBD). CAN SLIM is primarily made up of fundamental benchmarks that are used to identify high quality growth stocks. CAN SLIM is only one part of the IBD strategy which then takes stocks that meet these benchmarks and then uses technical analysis to determine the right tim to buy, hold, and/or sell these stocks. In this article, we will stick to the fundamental analysis of the IBD system of investing.

C in CAN SLIM® Current Earning

Benchmarks

1. Quarterly Earnings 25% or greater in recent quarters.

Earnings growth is often said to be the No. 1 reason stock prices go up. To calculate EPS, divide the companies after tax profits by the number of common shares outstanding.

When analyzing earnings, there are some caveats that you need to be aware of. If you are evaluating a company whos sales are seasonal, such as a alpine ski seller, you should pay more attention to how the current quarterly earnings compare to the same quarter a year before, instead of comparing just the last few quarters in succession.

In addition, be aware that earnings can look good for several reasons. But the reason that will drive long term growth is if that increase in earnings is due to an increase in sales. A declining company can have a good earnings report and make up for a lack of sales by closing offices and laying off workers. Not exactly the what you are looking for in a growth stock.

According to IBD, earnings growth is the No. 1 indicator of a stocks potential to make big gains.

A in CAN SLIM® Annual Earnings

Benchmark

2. Annual Earnings 25% or more for 3 consecutive years.

You are hunting for the best merchandise. Any company can have a good quarter, but you are looking for companies that are showing something special and sustainable.

N in CAN SLIM® Whats New?

My favorite new is an IPO. Typically, the most powerful move a stock will make will be in its first 2 years on the market. However, this is specific method to purchasing IPOs. It is too risky to buy an IPO on the day it opened. Instead, look for the stock to make its first base, or consolidation, and what for a strong break out of the base on high volume.