CAN SLIM Investing Strategy: A Comprehensive Guide

CAN SLIM, also referred to as “CANSLIM,” is an acronym where each letter identifies key characteristics to look for in a company. Developed by American William O’Neil, CANSLIM is used to aid in investment decisions by identifying strong-performing growth stocksStock Investing: A Guide to Growth InvestingInvestors can take advantage of new growth investing strategies in order to more precisely hone in on stocks or other investments offering above-average growth potential..

Quick Summary:

• CAN SLIM is an acronym developed by American William J. O’Neil, founder of Investor’s Business Daily.
• CAN SLIM is used to identify strong-performing growth stocks.
• The acronyms of CAN SLIM are C – current quarterly earnings, A – annual earnings, N – new product, service, or management, S – supply and demand, L – leaders or laggards, I – institutional ownership, and M – market direction.

Who is William O’Neil?

William O’Neil, born March 25, 1933, is an American writer, entrepreneur, and stockbroker who is best known as the founder of Investor’s Business Daily – a competitor of The Wall Street Journal. O’Neil wrote several books, including How to Make Money in Stocks, The Successful Investor, and 24 Essential Lessons for Investment Success. The CAN SLIM investing system was developed by O’Neil during his time as a stockbroker in the late 1950s.

Breaking Down CAN SLIM

According to CAN SLIM, the key characteristics to look for in a growth company are:

C – Current Quarterly Earnings

Current quarterly earnings per share (EPS)Earnings Per Share Formula (EPS)EPS is a financial ratio, which divides net earnings available to common shareholders by the average outstanding shares over a certain period of time. The EPS formula indicates a company’s ability to produce net profits for common shareholders. should increase by at least 25% when compared to the same quarter from the year before. Additionally, accelerating EPS growth in recent quarters is a strong positive sign.

A – Annual Earnings Growth

Annual earnings should be increasing over the last five years. Additionally, yearly EPS should be growing at least 25% or more over the past three years.

N – New Product, Service, or Management

There should be new things that are positively affecting the company’s future and driving the stock price – new products, services, or a newly-appointed strong management team.

S – Supply and Demand

The company should have a high trading volume during price increases and have a small floatFree FloatFree float, also known as public float, refers to the shares of a company that can be publicly traded and are not restricted (i.e., held by insiders). In other words, the term is used to describe the number of shares that is available to the public for trading in the secondary market. (fewer shares outstanding) relative to other companies.

L – Leader or Laggard?

The company should have a relative price strength of 80 or higher. Relative price strength is a technical indicator and shows the performance of a stock relative to the market.

I – Institutional Sponsorship

The company should have an increasing number of institutional investors buying the stock. Examples of institutional investors include mutual fundsMutual FundsA mutual fund is a pool of money collected from many investors for the purpose of investing in stocks, bonds, or other securities. Mutual funds are owned by a group of investors and managed by professionals. Learn about the various types of fund, how they work, and benefits and tradeoffs of investing in them, pension plans, banks, government bodies, and insurance companies.

M – Market Direction

Stock purchases should only be made when the market direction is upwards. O’Neil indicates that a stock may satisfy the first six factors of CAN SLIM and still sink if the market is on a decline.

Using CAN SLIM

By reading each criterion above, it should be apparent that the criteria are used to identify strong growth stocks (not value stocks!). CAN SLIM should be only used in a bullish market (see seventh criteria – market direction). Additionally, CAN SLIM should be used by seasoned investors as stocks that satisfy CAN SLIM are typically the ones that drop the fastest when market direction shifts and sentiment becomes bearish.

Additional Resources

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