How Annual Earnings Growth Reveals Tomorrow’s Stock Winners

Companies have good and bad quarters every now and then.

That’s why you must seek out numerous signals of a healthy company.

The A in CAN SLIM stands for Annual Earnings Increases.

You are seeking out big growth in annual earnings.

Look for companies that have increased annual earnings per share of at least 25% year over year for at least the last three years.

Consensus among analysts should also be that the stock is growing, but remember, analysts share their personal opinions, which can be wrong. Actual reported earnings are far more telling.

This alone will weed out 80% of stocks in an industry group.

ROE is a measure of how efficiently a company uses its money. It is calculated by dividing net income by shareholders’ equity.

Look for an ROE of at least 20%.

Contrary to popular belief, P/E ratios are not important when selecting a stock.

Many may overlook a stock with a high P/E ratio, but it could be a winner.

Percentage increase in earnings per share is what you should be looking at.

Concentrate on stocks with proven records of significant earnings growth in each of the last three years plus strong recent quarterly improvements.

Read the next chapter here.