CANSLIM – A Growth Stock
Investing Strategy

CANSLIM is an acronym used to highlight the characteristics of growth stocks studied by William J. O’Neil, the founder of Investors Business Daily (IBD). Contrary to the normal approach of studying criteria to see what results can be obtained; O’Neil studied the criteria of stocks producing significant gains during the period 1970 to 1982.

His observations are described in his book How to Make Money in Stocks: A Winning System in Good Times or Bad. Requirements published in the 2ⁿᵈ edition of the book differ slightly from latter publications by O’Neil. 

Historical Performance

No rigorous, published studies of performance exist but AAII has published the results of their implementation of the strategy for the period from January 1998 to the present. Using their database, Stock Investor Pro, they implemented both the 2ⁿᵈ and 3ʳᵈ edition strategies.

AAII bases their performance numbers on a monthly run of a strategy. For each strategy, they “buy” all passing stocks in equal dollar amounts and “sell” everything at the end of the month. The approach does not consider trading costs, spreads or average prices but does produce a percentage gain or loss for each strategy each month resulting in a way to compare all the AAII pre-defined strategies. See the current performance results .

Under this format, AAII’s interpretation of the 2ⁿᵈ edition outperformed the 3ʳᵈ edition. Even more surprising as a growth stock investing strategy, it suffered only a 10% loss in 2008.

What to screen for

Like most growth strategies, CANSLIM is heavily dependent on earnings performance, sales performance (3ʳᵈ edition), management performance (3ʳᵈ edition) and price action. The acronym represents these as follows:

C: Current earnings performance

A: Annual earnings performance

N: New products, new management, or new high price

S: Supply and Demand

L: Leader of industry

I: Institutional support

M: Market conditions

Earnings performance

The C and A components of the strategy relate to earnings growth and acceleration. Several articles suggest how best to screen for these criteria but it is important to understand O’Neil’s reasoning in order to decide what works best for you. More ...

Share qualities

The N, S, L and I components of this growth strategy relate to price action and share ownership. In addition to stock screening criteria, O’Neil describes attributes worthy of consideration. More ...

M - Market Direction

The final attribute of the CANSLIM strategy is the direction of the market – not something about which there is general agreement. Most pundits agree that this is a technical issue. How you choose to resolve this is a personal decision. The good news is that in a declining market, there will be fewer passing companies. In addition, William O’Neil is a proponent of cutting losses quickly. He insists on selling any time a loss of 7% or more is incurred.

Stock screening requirements

Based on the published implementations and the requirements set forth in several books and articles, we use the following primary criteria to illustrate creating CANSLIM screens:

Data Requirement	Operator	Parameter
Q5 to Q1 EPS growth	>=	18%
Q5 to Q1 EPS growth	>	Q5 to Q1 EPS growth
Q1 EPS	>	0
5 Yr Avg EPS growth	>	25%
TTM EPS	>=	Y1 EPS
Y1 EPS	>	Y2 EPS
Y2 EPS	>	Y3 EPS
Current price	>=	0.9 * 52 Wk High
Shares outstanding	<=	25 million
52 Wk Relative Strength rank	>=	80
Institutional Owners	>=	3
Institutional Ownership	<=	35%

This is an extensive list of requirements and not easily met. In the discussion of the earnings and share requirements we identified alternate requirements to consider if a stock screener cannot meet the primary criteria.

Implementing the CANSLIM strategy

There are free stock screeners as well as fee-based screeners that can be used to implement the strategy. Continue to see the complete discussion

Remember: CANSLIM is not a mechanical investing strategy, so some screeners were considered adequate because the number of results to be checked manually were minimal.

Keep in mind the goal is to illustrate how stock screening can reduce the effort needed to implement investing strategies. This evaluation is not a recommendation of the strategy. It is not investing advice.

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