What is the CANSLIM method? Why is it a good potential stock filter?
Developed by William O’Neil, this strategic method has gained widespread acceptance. CANSLIM is a methodology that includes a set of criteria to help investors filter trending growth stocks. These principles correspond to each letter that stands for the word “CANSLIM”. When analyzing stock prices, investors use a variety of analytical tools. To look at it objectively, many investors now use the CANSLIM method to filter stocks with potential for trend growth. This is a method that helps investors a lot in making investment stock selection decisions. So specifically, what is the CANSLIM method? Let’s find out in the following article.
What is the CANSLIM method?
The CANSLIM method consists of the initials of seven methods that should be followed when choosing and trading securities. In addition, the CANSLIM method also refers to the use of stop-loss orders to switch to holding cash to help investors minimize risks in securities investment.
What are the stock filter criterias by CANSLIM?
Corresponding to each letter of the word “CANSLIM” is a criterion to evaluate a successful growth stock in the past, specifically as follows:
Criterion C
C (Current Quarterly Earnings Per Share) is earnings growth for the current quarter. This is the criterion used to determine whether the issuing company has reported good and higher earnings than the previous year’s earnings.
For companies with growth in stock prices, quarterly earnings growth exceeds 70% before the growth period takes place. The EPS of the enterprise in the latest quarter and the next quarter must reach at least 20% – 25% over the same period and not compare with the previous quarter to eliminate the seasonal factor.
Criterion A
A (Annual Earnings Increases) is the annual profit growth. Criterion A helps investors determine if the business has experienced good profit growth over the previous period.
With this criterion, businesses need to achieve at least 25% annual income growth. In addition, the ROE index in the last 4 quarters must reach 17% to ensure that the business is having good investment results.
Criterion N
N (New Products, New Management, New Highs) is new product, new administration, new price. This is a criterion used to consider whether a business has product innovation or changes in business management to promote more efficiency.
Sharp and rapid increases in share prices can usually occur with the emergence of “new” situations (starting to produce a new product, a new management or a new price change). such as reaching the top). The aspect that emerged as a result of William O’Neil’s research and differs from other classical analysts is that while classical analysts say “buy low, sell high”, William O’Neil says “Buy when high and sell when higher”. According to O’Neil’s research, if a stock that has made a horizontal movement between 2-15 months rises even higher than the highest price reached in this period, big exits begin. Therefore, in the event of such a rupture, a purchase must be made if all the seven conditions specified are met.
Criterion S
S (Supply and Demand) is the criterion of quantity supplied and demanded for that stock. This is a criterion that can help to see if the demand for a stock is increasing in the market as well as the trading volume of that stock right now.
It can be said that S is a core selection criterion because this is the main reason why stock prices go up or down. With this criterion, investors need to observe whether the daily trading volume of stocks is greater than the average trading volume of the previous 3 months.
Criterion L
L (Leader or Laggard) is the leader or trailing stock. With this criterion, investors can consider whether the business is leading in the marketThe shares of the leading companies in the sector, whose production is increasing the fastest and whose future is expected to be very good, should be selected. . Investors should look for companies that have higher share price strength than competitors, even up to 80% higher in market transactions.
Criterion I
I (Institutional Sponsorship) is the support of financial institutions and investment funds. This is a criterion to assess whether a business is owned by large organizations.
Organizations or large shareholders will often have a team of experts to help analyze and evaluate all investment opportunities in stocks, so if businesses with these organizations are holding shares without you are looking at it is very good.
Criterion M
M (Market Direction) is the trend of the market. This stage is perhaps the most important stage. No matter how good a stock you have chosen, if the direction of the market is downward, your stock will not be able to provide a good return due to the pressure of the market. On this subject, O’Neil says: “Learn to determine the direction of the market by interpreting the daily-weekly price and trading volume of the general market. If you do this you won’t go off the rails. If you know not to fight against the index, you don’t need to do and know much to win.”
This criterion will help investors grasp the overall trend of the entire market. From there, you will easily arrange the time to buy stocks in the most effective way.
Summary
Above is all the information about what CANSLIM method is. It can be said that CANSLIM is a combination of technical analysis, fundamental analysis, cash flow analysis and business growth potential. Hope this article will help you to understand what CANSLIM is. Good luck with your investment.
