Current Quarterly Earnings
- 25% or higher earnings-per-share (EPS) growth in most recent quarter
- Preferably accelerating EPS growth (i.e., rising quarter over quarter)
Why It’s Important
It’s no coincidence that the first two letters of the CAN SLIM Investing System both relate to earnings growth — the No.1 factor to consider when deciding what stocks to buy.
Big, accelerating earnings-per-share (EPS) growth is what attracts the attention of the large institutional investors. So start your search for market winners by looking for stocks with strong quarterly and annual earnings growth — the “C” and “A” in CAN SLIM.
Understand that 25% quarterly EPS growth is the minimum benchmark. The very best stocks will typically have gains of 50% to 100% or more. The bigger, the better; so focus on companies with market-leading, explosive earnings growth.
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What Else You Should Know
Make sure the company is strong in terms of the ingredients that generate powerful earnings growth. If the company is weak in these areas, it may not be able to sustain long-term EPS gains.
Sales Growth: Look for 20% – 25% or higher growth in the most recent quarter. If the company’s sales growth is below that benchmark, make sure it has at least increased in recent quarters.
Return on Equity: Look for 17% or higher ROE. Return on equity reveals how well a company manages its capital and helps you identify the best-run businesses.
Where to Find it
IBD Stock Checkup: You’ll find pass or fail ratings for a stock’s current quarterly earnings growth, sales growth, return on equity, pre-tax margins, EPS and SMR Ratings and more. See how IBD Stock Checkup rates your stock
IBD SmartSelect Ratings:
EPS Rating: Ranks each stock from 99 (best) to 1 (worst) in terms of both current quarterly and annual earnings growth. The best stocks typically have an EPS Rating of 95 or higher, meaning they’re in the top 5% of all stocks in terms of earnings-per-share growth.
SMR Rating: Combines sales growth, profit margins and return on equity into one rating, then ranks each stock from A (best) to E (worst). An SMR Rating of A means the company is in the top 20% of all stocks in terms of the key ingredients that drive earnings growth.
NEXT TOPIC: A – ANNUAL EARNINGS GROWTH
View more information: https://www.investors.com/ibd-university/can-slim/quarterly-earnings/