CAN SLIM is a philosophy used to screen, purchase and sell equities. This philosophy is developed by William O’Neil. CAN meaning Current Earnings, Annual Earnings, and New and SLIM meaning Supply and Demand, Leader and Laggard, Institutional Sponsorship, and Market Direction.

Current Earnings

Companies that have shown increased earnings per share (EPS) in the last quarter over corresponding period of the previous year can be good picks according to O’Neil. CAN SLIM suggest an EPS not less than 18% – 20% is desirable. However, all high performing companies showed outstanding quarter-on-quarter growth. A true speculator usually demonstrates a growth of 50% or more.

You need to confirm that earnings of companies are of good quality. You can check those figures with that of the industry. If the earnings growth in industry is solid, it confirms that the industry is thriving and company is ready to breakout.

Annual Earnings

An increase of 25% – 50% in companies’ annual earnings can be good stock picks. Wal-Mart showed an average annual earnings growth rate of 43% during 1977 and 1990.

New introductions

It is often necessary for a company to become successful if it had undergone a change. Change can in the management team, a new product or service, a new market or a new high in stock market. McDonald grew over 1100% during 1967 and 1971 when it introduced new fast food franchises.
Supply and Demand

This principle is based on the theory that keeping all other things equal, a smaller firm with smaller number of shares outstanding can show outstanding returns. A large cap company requires much more demand than a smaller cap company. Individual investors tend to invest in smaller companies as their stock price is not much directed by institutional investors. In a study conducted by O’Neil reveals that 95% of the companies exhibiting largest gains in share price had lower than 25 million shares outstanding when gains were realized.

Leader or Laggard

Although there are two companies with identical business operations in an industry, you wouldn’t show interest to invest in a company whose stock price is cheaper as it evokes your sympathy. They are market laggards. You tend to pay a premium for a market leader thinking that it will be worth in the end.

Institutional Sponsorship: A company that has 3 – 10 institutional owners is considered desirable to invest in such companies. It would be too late to buy ownership if the company has too much institutional ownership. Quality of institutional owners needs to be assessed before investing. Any bad news will drastically affect the stock price in the market.

Market Direction

It should be kept in mind that you have to go along the trend. Keeping track of market conditions is essential to be successful in the market. Watching daily volumes and their price movements give understanding of the market for a better investment decision.