The CANSLIM Investing System

The CANSLIM Investing Methodology

What Is CANSLIM? Overview and Key Points.

The CANSLIM investing methodology was developed by William O'Neil, founder of Investor's Business Daily. CANSLIM is an acronym that stands for

  • C: Current quarterly earnings
  • A: Annual earnings growth
  • N: New products, services, or management
  • S: Supply and demand
  • L: Leader or laggard in its industry
  • I: Institutional sponsorship
  • M: Market direction

The CANSLIM method is a combination of fundamental and technical analysis that is used to identify stocks that are poised for strong price advances.

CANSLIM is a comprehensive approach to stock selection that looks at a variety of factors, not just the price movement of the stock. This makes it a powerful tool for finding stocks that are not only in a strong uptrend, but also have the fundamentals to support continued price appreciation.

If you're interested in learning more about the CANSLIM investing methodology beyond the scope of this article, we recommend checking out William O'Neil's book, “How to Make Money in Stocks.”

TraderLion CANSLIM Infographic Overview of each letter

C – Current Quarterly Earnings

A stock's price is ultimately determined by its earnings. If a company is consistently reporting strong quarterly earnings, then the stock is likely to continue to trend higher.

To find stocks with strong current earnings, O'Neil recommends looking for companies that have reported earnings that are growing at a rate of 25% or more, quarter over quarter for their most recent quarter.

A – Annual Earnings Growth

In addition to looking at a company's current earnings, O'Neil also looks at the company's annual earnings growth rate. This is a measure of how much the company's earnings have grown on a year-over-year basis.

O'Neil recommends looking for companies with an annual earnings growth rate of 25% or more. This combination of current and annual earnings growth is a powerful indicator of a company's fundamentals.

One of the easiest ways to scan for growth stocks is by using Deepvue. You can find all the stocks that meet your criteria in just a few clicks.

N – New Products, Services, or Management

CANSLIM also looks for companies that have something new to offer investors. This could be a new product, service, or management team.

New products and services can provide a company with a competitive advantage and help to drive earnings growth. O'Neil recommends looking for companies that have announced something new within the past six months.

S – Supply and Demand

In addition to looking at a company's fundamentals, O'Neil also looks at the supply and demand for the stock. This is where technical analysis comes into play.

The more shares outstanding a company has, the more supply there is. The more supply there is, the more demand it takes for the price to move higher. If given two stocks, one with 2 billion shares outstanding, and one with 50 million shares outstanding, all other things being equal, the stock with fewer shares outstanding will be the better investment.

As a general rule, look for companies that are buying their shares back (reducing the number of shares outstanding). This is a bullish sign, as it means that management believes the stock is undervalued and is willing to put their money where their mouth is.

Jump to: How the Volatility Contraction Pattern (VCP) can boost your trading strategy.

L – Leader or Laggard

The next factor in CANSLIM that O'Neil looks at is whether a stock is a leader or laggard in its industry. He defines a leader as a stock that is outperforming the majority of stocks in its sector or industry group.

If you have a group of 10 stocks and few of them are showing strong price action and trading near 52-week highs while the others struggle, those are your leaders in that industry group.

To find leaders, O'Neil recommends looking at a variety of technical indicators, such as relative strength, price action, volume, and moving averages.

I – Institutional Sponsorship

The sixth factor that O'Neil looks at is institutional sponsorship. This refers to the number of large institutions, such as mutual funds and hedge funds that are buying a stock.

O'Neil recommends looking for stocks with high and increasing institutional sponsorship. This is a sign that smart money is behind a stock.

M – Market Direction

The final and most important factor in CANSLIM is market direction. This refers to the overall trend of the stock market. You should only be actively buying stocks when the market is in an uptrend. When the market is in a multi-month downtrend or bear market, it's often best to stay on the sidelines. O'Neil's research determined that 3 out of every 4 stocks follow the trend of the general market.

In addition to CANSLIM's Follow-through Day, another extremely effective way to determine the trend of the general market is with Stan Weinstein's Stage Analysis, another powerful system for trading growth stocks.

Try our free position size calculator to help determine how many shares to buy.

Who is William O'Neil?

William O'Neil is an American businessman and stock market investor. He is the founder of Investor's Business Daily, a newspaper and website that covers business and finance news. He is also the author of several books on trading and investing. O'Neil is a well-known figure in the world of investing and his CANSLIM methodology has been and continues to be used by many extremely successful investors. 

Advantages of CANSLIM

The CANSLIM investing methodology has a number of advantages.

First, it takes a systematic and disciplined approach to stock selection. This helps to remove emotion from the decision-making process.

Second, CANSLIM is based on decades of research. O'Neil spent years studying the most successful stocks in history and distilling their characteristics into this investing system. He studied the similarities of the biggest winning stocks going back to the beginning of the stock market.

Disadvantages of CANSLIM

This system is more effective in a bull market than it is in a bear market. This is because CANSLIM focuses on finding stocks that are leading the market higher.

If you're looking to be short the market, the disadvantage is that it recommends sitting in cash during downtrends instead of profiting from the downside. CANSLIM protects you from the downside, however, if you are looking to actively short stocks, CANSLIM likely isn't for you.

Conclusion — Does CANSLIM work?

O'Neil's CANSLIM investing system has a proven track record of success. In fact, the CANSLIM methodology has identified some of the biggest winners in recent history, such as Amazon, Apple, and Google.

If you are looking for a systematic approach to stock selection that combines technical analysis with fundamental analysis, it's most definitely worth looking into.

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Frequently Asked Questions

The CANSLIM trading strategy is a growth-oriented stock-picking methodology developed by William J. O'Neil, founder of Investor's Business Daily. It combines both fundamental and technical analysis to identify high-potential stocks poised for significant growth. The acronym “CANSLIM” represents seven key factors: Current quarterly earnings, Annual earnings growth, New products/services, Supply and demand, Leading industry groups, Institutional sponsorship, and Market direction.

The CANSLIM strategy emphasizes the importance of a stock's current quarterly earnings, seeking companies with a minimum 25% growth in earnings per share (EPS) compared to the same quarter in the previous year. This factor suggests that the company is experiencing strong financial performance, which may positively impact the stock's price.

New products, services, or management strategies play a crucial role in the CANSLIM methodology, as they can drive significant growth and lead to increased market share. Stocks with innovative products or services that disrupt their industry or offer competitive advantages are more likely to outperform their peers and deliver substantial returns to investors.

The CANSLIM strategy recognizes the importance of market direction in determining the overall success of stock investments. The methodology suggests that three out of four stocks tend to follow the general market trend, making it essential for traders to analyze the broader market before making investment decisions. This approach helps traders align their investments with the prevailing market trend and increase the likelihood of success.

The main limitation is that the system is more effective in a bull market than it is in a bear market. This is because CANSLIM focuses on finding stocks that are leading the market higher.

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