Nick Schmidt is a co-founder of TraderLion and Deepvue with over 10 years of market experience. Adopting a “less is more” philosophy, he focuses on weekly charts with an emphasis on price and volume.
The CANSLIM method was created by William O’Neil. It helps investors find stocks with strong growth potential. In his book How to Make Money in Stocks, O’Neil explains this strategy. It combines fundamental and technical analysis to spot companies with big price potential.
Here’s a quick look at each part of CANSLIM:
C: Current Quarterly Earnings – Look for companies whose quarterly earnings are growing at 25% or more, quarter over quarter.
A: Annual Earnings Growth – Focus on companies with steady annual earnings growth, ideally 25% or more over the past three years. This signals consistent, long-term strength.
N: New Products, Services, or Management – Companies that are innovating, expanding into new markets, or bringing in fresh leadership are often set up for new growth.
S: Supply and Demand – Stocks with high demand and limited supply tend to rise quickly, especially when there’s a surge in trading volume during buying periods.
L: Leader or Laggard – Stick with industry leaders that show high relative strength, as these tend to outperform their competitors.
I: Institutional Sponsorship – Interest from big investors, like mutual funds and pension funds, provides stability and buying power. This support helps drive price growth.
M: Market Direction – No matter how strong a stock is, the broader market trend affects its performance.
CANSLIM combines price action with key fundamentals. This helps find strong stocks and avoid weak ones. Next, we’ll explain each part of CANSLIM in detail. You’ll get practical tips to start using this approach.
Understanding Each Step of CANSLIM
C – Current Quarterly Earnings
In CANSLIM, Current Quarterly Earnings is important for finding stocks with real growth potential. Stock prices often rise with strong earnings growth. High earnings mean demand, good leadership, and efficient operations, boosting the stock.
William O’Neil suggests 25% earnings growth over the same quarter last year. This rate shows a company is outpacing others, often due to higher sales, market share, or cost control.
But don’t just look for 25% growth alone. There’s more to consider.
Aim for Higher Growth: While 25% is a good starting point, many top-performing stocks historically had growth rates of 50%, 100%, or even higher before they made their biggest moves. Faster growth suggests strong demand or a dominant market position, which attracts institutional investors and drives rapid price increases.
Look for Consistent Growth Trends: One great quarter is nice, but consistent growth over multiple quarters is a stronger signal of a company’s health. For example, if a company’s earnings grow 30% one quarter, 35% the next, and 40% after that, you’re seeing a clear upward trend, or what’s called “earnings acceleration.”
Watch for Earnings Acceleration: Stocks with accelerating earnings growth can have explosive price performance. If earnings growth is speeding up each quarter, it shows the business isn’t just stable but actively improving. This might mean the company’s gaining market share or that demand for its products is expanding.
Use Year-Over-Year Comparisons: Comparing this quarter’s earnings to the same quarter last year gives you a clearer picture of growth because it accounts for seasonal trends. For example, if Q1 earnings grew 40% this year compared to Q1 last year, that’s a strong sign of improvement despite seasonal ups and downs.
Check Sales Growth Too: Strong earnings matter, but real demand is also reflected in sales growth. Aim for companies with at least 20% quarterly sales growth, as this suggests the earnings growth is coming from genuine customer interest rather than just cost-cutting or one-time gains.
Look for Earnings Surprises and Analyst Revisions: Companies that regularly beat analyst expectations or see upward revisions often gain momentum as big investors respond to the better-than-expected results. A company that surprises on earnings frequently sees a stock price bump as analysts and investors adjust their outlook.
Pay Attention to Profit Margins: Earnings growth is great, but if profit margins are expanding too, it shows the company is becoming more efficient—turning more revenue into profit. Rising margins are a good sign of operational efficiency and can lead to even stronger earnings down the line.
Compare Within the Industry: Measure a company’s earnings growth against its industry peers. A company that’s outpacing its competitors in earnings growth is likely gaining market share or executing a stronger strategy, making it a potential leader. O’Neil emphasizes picking industry leaders because they tend to outperform in their sectors and attract more institutional attention.
Focus on Quality Earnings: High growth is key, but it should come from core operations rather than one-time gains like asset sales or accounting tricks. Look for companies whose earnings are driven by real business growth, as this is more sustainable and likely to lead to long-term gains.
The C in CAN SLIM is about finding high-quality, high-growth companies with the potential for sustained performance. By focusing on strong, consistent earnings growth, accelerating gains, healthy profit margins, and real demand, you can identify stocks with solid fundamentals that are set for significant price growth.
A – Annual Earnings Growth
Quarterly earnings show recent performance, but annual earnings reveal long-term health. In CANSLIM, Annual Earnings Growth is key. It shows if a company can sustain growth over time, proving its products, leadership, and business model are solid.
William O’Neil recommends looking for companies with 25% annual earnings growth over three years. This level of growth shows stability and strong future potential. Here’s why it matters and how to evaluate it well.
Consistency Over Time: Annual earnings growth reveals if a company has a stable growth path, rather than just a few good quarters. Companies that grow their earnings by 25% or more each year for three years usually have a solid business model and effective management that can handle different market conditions. This consistency makes the stock a more stable choice, reducing the risk of big earnings swings.
Look for Steady or Accelerating Growth: Companies with steady or accelerating annual earnings growth often have better potential for price gains. Accelerating growth—where the growth rate increases each year—suggests the company is either expanding its market reach or boosting efficiency. For example, if a company’s growth rate was 20% two years ago, 25% last year, and 30% this year, it shows strong momentum, which attracts big institutional investors.
Compare Against Industry Standards: Comparing a company’s growth rate to its industry peers helps you spot true leaders. If a company’s annual earnings growth is much higher than the industry average, it may have a competitive edge or unique advantage. Industry-leading growth often means the company is gaining market share, making it a top performer in its sector.
Three to Five-Year Track Record: A consistent growth record over three to five years adds even more credibility. It shows the company can perform across different economic conditions. Stocks with a proven growth track record are less likely to face sudden downturns and are more appealing to large investors looking for stable growth.
Profit Margins and Efficiency: Strong annual earnings growth is even better if it comes with rising profit margins, or at least stable ones. This shows the company isn’t just growing revenue but doing so profitably. Expanding margins mean management is controlling costs well, which is important for sustainable growth. Companies with both earnings growth and improving margins are in a strong position to reinvest in their business for even more growth.
Return on Equity (ROE):ROE is another helpful metric to check alongside annual earnings growth. It shows how well a company uses its shareholders’ equity to generate profit. A good rule of thumb is to look for companies with an ROE of 15% or higher, as this indicates efficient management and potential for sustained growth. High ROE paired with strong earnings growth usually signals a well-run business with a profitable model.
Check for Revenue Growth Too: Seeing both EPS and revenue growth gives you a clearer picture of whether this growth comes from real sales increases rather than just cost-cutting or accounting tricks. Aim for companies with both earnings and revenue growth above 20% annually. This combination shows a healthy, expanding business with real customer demand.
Focus on Established Leaders with Growth Potential: While newer companies might have erratic earnings, companies with a history of 25% or higher annual earnings growth tend to be more stable. These established leaders often dominate their industries and have the infrastructure to keep growing.
Deepvue makes scanning for CAN SLIM stocks super simple. The tool lets you instantly filter for companies that meet key criteria like strong annual earnings growth, revenue growth, and even accelerating quarterly or annual performance. In just a few clicks, Deepvue delivers a curated list of high-potential stocks, making your search for winners faster and more efficient.
N – New Products, Services, or Management
In CANSLIM, the “N” stands for something new—a recent development that boosts a company’s edge. This could be a new product or a leadership change. New developments attract investors, excite the market, and drive earnings higher. William O’Neil suggests this change should be recent, ideally within six months, to keep momentum strong.
Here’s why the “N” factor matters and how to spot it:
New Products or Services as Growth Drivers: A new product can give a company a big edge, especially if it meets high demand or solves a unique problem. Think of groundbreaking tech, innovative software, or a hot consumer item.
Expanding into New Markets: Entering new regions unlocks fresh revenue streams and boosts growth. For instance, a U.S. company entering Europe or Asia gains access to more customers. Market expansions show ambition and can attract institutional investors.
Management Changes: A new management team can bring fresh energy and focus. Leaders with strong records often update strategies, improve efficiency, and set new goals. Hiring experienced CEOs, CFOs, or COOs signals a push for growth and profitability.
Strategic Acquisitions and Partnerships: “New” can also mean a key acquisition or partnership. For example, a tech company buying a smaller innovator gains new technology, speeding up development. Partnerships enable cross-marketing, resource sharing, and operational synergies, all boosting growth potential.
Product Upgrades or Service Enhancements: Regular improvements show a company’s commitment to staying competitive. Frequent updates meet customer needs, attracting new buyers and building loyalty. For example, tech companies release software updates or hardware upgrades to stay relevant and drive sales.
Timing Matters: O’Neil recommends that “new” developments happen within the last six months. This keeps momentum fresh and increases the chance of attracting investor interest.
Positive Impact on Earnings: It’s not enough for a company to introduce something new—it should also have a clear path to boosting earnings. Look for signs that a new product or service is driving sales growth, or at least has the potential to do so. For example, if a pharmaceutical company launches a new drug addressing a high-demand need, it should ideally come with strong sales forecasts or positive early market reception.
In CAN SLIM, the “N” component helps identify companies with fresh growth drivers that sets them apart from competitors. By focusing on companies with recent, impactful changes, you can find stocks with strong potential to capture institutional interest and drive up price.
S – Supply and Demand
In CANSLIM, Supply and Demand is super important for spotting stocks with potential for big price moves. While strong fundamentals show a company’s value, it’s the balance of supply and demand that ultimately dictates how far and fast a stock can go. William O’Neil stresses that technical analysis lets investors see demand play out on the chart and gauge whether it’s strong enough to drive sustained price increases.
It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower.
When a stock has strong demand, it often keeps climbing, even when it seems overvalued, because demand continues to outpace supply.
Here are more important aspects that William O’Neil highlights related to supply & demand:
Shares Outstanding and Scarcity: A stock’s potential for sharp price increases is amplified when there are fewer shares available. With all else equal, a stock with 50 million shares outstanding has a greater chance of substantial price moves compared to one with 2 billion shares. This scarcity effect means that any uptick in demand has a stronger impact, making it easier for prices to climb. In other words, when shares are scarce, demand has more power to drive the price up.
Spotting Demand on the Chart: Watch price and volume closely. Look for increased trading volume on up days, and especially for breakouts that happen on volume well above the stock’s average. For example, a breakout from a flat base pattern with 40-50% higher-than-average volume shows strong demand. This signals buyers are in control, making the move likely to last.
Share Buybacks as a Supply Reduction: Companies that buy back their own shares are reducing the overall supply, which can create upward pressure on the stock price if demand remains steady or grows. Buybacks signal that management believes in the company’s value and is willing to put cash toward reducing share availability. For investors, buybacks are a bullish sign, especially when coupled with strong demand in the market.
Institutional Ownership and Consistent Demand: Growing institutional ownership is another indicator of steady demand. Institutions typically buy large quantities and hold for longer periods, which creates a foundation of support for the stock price. The pocket pivot helps identify subtle institutional accumulation.
Trading Float and Liquidity: The float, or the number of shares available for public trading, has a big impact on how responsive a stock is to demand. Stocks with a small float can see faster price increases with even moderate buying pressure, as there are fewer shares to absorb that demand. For growth investors, a stock with a limited float and strong fundamentals can be a high-potential opportunity, as the combination of rising demand and limited supply leads to sharp increases in price.
Using Chart Patterns to Read Demand: Chart patterns are visual indicators of supply and demand. They show demand builds over time as sellers gradually exit and buyers begin to take control. For example, in the cup-with-handle pattern, the stock first dips to form the rounded “cup” shape, indicating that initial selling pressure is fading as demand starts to stabilize the price. When the stock reaches near its previous highs, it typically forms a smaller dip—the “handle”—which represents a final shakeout of weak less committed holders. At this stage, supply is drying up, leaving only committed buyers.
Short Interest: High short interest can boost demand dynamics. When a heavily shorted stock rises, short-sellers must buy shares to cover, creating a “short squeeze.” This can cause a sudden surge in demand, quickly driving the price up. For CANSLIM investors, finding a stock with high short interest and strong demand can lead to the most explosive moves in price.
Understanding supply and demand is about recognizing the core forces that drive stock prices. Strong fundamentals matter, but visible demand on the chart is crucial. Stocks with low supply and high demand—shown by volume spikes, chart patterns, and relative strength—are set for big gains. By focusing on supply and demand, CANSLIM investors find stocks where demand keeps pushing prices higher, often beyond expectations.
L – Leader or Laggard
The next factor in CANSLIM is identifying Leaders versus Laggards. William O’Neil emphasizes choosing market leaders—stocks that consistently outperform their peers in both price action and fundamentals.
The number one market leader is not the largest company or the one with the most recognized brand name; it’s the one with the best quarterly and annual earnings growth, return on equity, profit margins, sales growth, and price action.
William O’Neil
Leaders attract more investor and institutional interest. Laggards struggle, even in rising markets. By focusing on leaders, investors find stocks with the best chance for growth.
Here’s how to spot leaders and why it matters:
Relative Strength (RS) Rating: One of the best indicators of leadership is the Relative Strength (RS) rating, which ranks a stock’s performance against the broader market. Stocks with an RS rating of 80 or higher are what you want to look at, as they outperform at least 80% of all stocks, signaling strong buying interest and consistent demand. High RS ratings reveal that the stock is aligned with the market’s strongest trends, making it more likely to continue its upward momentum.
Industry Group Performance: Leaders are often found in the top-performing sectors, as stocks within strong industries benefit from additional market momentum. Almost 50% of a stock’s move is related to it’s sector and industry group. This aligns with a popular Stan Weinstein quote: “Two equally bullish charts will perform far differently if one is from a bullish sector while the other is from a bearish group.” By focusing on the top industry groups—those with the strongest performance over the last 6 to 12 months—investors can leverage group strength to increase their chances of success. This is also a core principle Stan shares in his Stage Analysis methodology.
Strength During Market Corrections: True leaders hold up better during market pullbacks. They have smaller price declines compared to the broader market. This shows strong support from big investors who hold or buy more shares. Market corrections are the best time to spot strong stocks. These stocks will likely keep leading or become new leaders.
Avoiding Laggards: Stocks with RS ratings below 70 generally fall into the laggard category, meaning they underperform the market or their industry peers. Laggards often struggle to attract demand from institutional investors. Even in a bull market, laggards will underperform the leading stocks in the same industry group.
Focusing on leaders is important for stacking the odds in your favor. Leaders in strong sectors benefit from both individual strength and sector momentum. By selecting stocks with high RS ratings, solid earnings growth, and top positions in their industries, you will put yourself in the best position to succeed.
I – Institutional Sponsorship
Institutional Sponsorship refers to the presence of big investors—like mutual funds, pension funds, and hedge funds—in a stock. William O’Neil emphasizes the importance of these large investors because they bring stability, credibility, and a steady flow of cash that can drive stock prices up. When institutions back a stock, it’s usually a good sign that the stock has been thoroughly vetted and has strong growth potential.
Here’s how you can use institutional sponsorship to make better stock choices:
Look for High-Quality Institutional Backing: Not all institutional support is equal. The best stocks are backed by top-performing funds with a history of strong returns. These high-quality funds focus on growth stocks and are selective about where they put their money. By checking fund ratings or holdings data, you can find stocks that these reputable institutions are buying. This gives you more confidence that the stock has solid potential.
Watch for Trends in Institutional Ownership: Keeping an eye on changes in institutional ownership can give you early clues. If more funds are buying a stock, that’s generally a good sign and indicates growing interest. On the other hand, if institutional ownership is dropping, it could be a red flag, suggesting that large investors are pulling out, which might put downward pressure on the price.
Impact on Liquidity: Institutional ownership generally improves a stock’s liquidity and stabilizes its price. When large institutions buy in bulk, they create a floor of demand that reduces swings in price and volatility. This is helpful for individual investors and also a key reason why price tightening up is a good sign to pay attention. This tightening in price is seen very clearly in the powerful Volatility Contraction Pattern (VCP).
Don’t Overlook the Risk of Excessive Sponsorship: While institutional backing is a good thing, too much of it can actually be a red flag. When institutional ownership is extremely high, there’s less room for new buyers, which can cap further upside. Ideally, you want stocks with moderate to growing institutional interest—not so much that it’s overbought but enough to show solid demand.
Institutional sponsorship brings credibility, consistent demand, and price stability to a stock. Stocks with backing from top-tier institutions are more likely to experience steady price growth. By focusing on stocks with increasing institutional interest, you’re aligning your trades with the major forces that drive market momentum.
M – Market Direction
Market direction is the most important factor because it affects every stock, no matter how strong. Even the best stocks will sink in a bear market. When the general market trend is up, it’s a good time to buy and hold strong stocks, especially using strategies like the 8 Week Hold Rule to maximize gains. But when the market trend is down, it’s usually safer to hold cash and watch for stocks showing relative strength. This way, you’re ready when the market bottoms and the uptrend returns.
Three out of four stocks follow the trend of the general market.
William O’Neil
Market Direction as a Timing Signal: Market direction serves as a guide for when to enter and exit positions. In a bull market, you should be more aggressive and ride the overall upward trend. In a bear market, you want to reduce your exposure, protect your money, and wait for better conditions. O’Neil famously said, “The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” In other words, protecting your capital during downturns is just as important as making gains during uptrends.
Identifying Key Turning Points: There are ways to identify when the market is shifting from a correction to a new uptrend. One key signal O’Neil used is the Follow-Through Day (FTD), which typically happens four to seven days after the market hits a low. An FTD is marked by a significant gain in one of the major indexes on high volume, signaling that big investors are coming back into the market. When you spot an FTD, it’s a sign that a new bull phase might be starting, giving you the chance to get in early and start initiating new buys in the stocks with strong RS you identified.
Avoid Going Against the Market: Market direction has a powerful influence on individual stocks, so trying to bet against it usually doesn’t end well. Even fundamentally strong stocks will decline in a bear market. Rather than holding or buying stocks that seem undervalued in a down market, it’s better to wait until the market trend turns positive again. O’Neil’s advice here is clear, “You can be a brilliant stock picker, but if you’re investing during a severe bear market, the odds are against you.”
Market direction is foundational because it sets the stage for whether individual stocks are likely to succeed. By aligning with the broader market trend, you put yourself in a better position to succeed. As O’Neil’s research shows, “At least 50% of the whole game is the general market.”
Scanning for high growth stocks that meet William O’Neil’s criteria can be tough without the right tools. Deepvue is a CANSLIM screener that makes it super easy. Deepvue’s screener is packed with dozens of presets you can use to start scanning for the best CANSLIM stocks right away. In Deepvue you can use relative strength ratings and industry group rankings to spot the top performers in each sector in just a few clicks.
Deepvue also brings key insights right to you, like earnings accelerations and updated analyst estimates, displayed directly beneath every chart. This way, you get the most important CANSLIM data you need without digging. Whether you’re an experience trader or new to the CANSLIM strategy, Deepvue’s easy-to-use interface and stock ratings make the process smooth and efficient.
Advantages of CANSLIM
CANSLIM gives traders and investors a structured, research-based approach to stock picking that combines both fundamental and technical analysis. Here are the main benefits:
Systematic and Disciplined Approach: CANSLIM’s step-by-step process helps make decisions based on specific criteria, cutting down on emotional decisions. The methodology encourages disciplined buying and selling, which help avoid common mistakes like holding onto losing stocks or wasting time buying low quality stocks. O’Neil stresses that the ability to quickly cut losses and identify top stocks is key to long-term success, and CANSLIM is designed to instill this discipline.
Backed by Decades of Research: William O’Neil created the CANSLIM strategy after decades of research. He studied top-performing stocks from the early 1900s onward. In How to Make Money in Stocks, he explains how he analyzed winning stocks across economic cycles. He then used this research to form the CANSLIM formula. This history gives CANSLIM a unique edge. It identifies patterns like strong earnings growth and industry leadership, which have proven successful.
Focus on High-Growth Stocks: CANSLIM is designed to identify companies with big growth potential. CANSLIM helps investors find companies that are in high demand, often in innovative sectors or industries, and have the growth metrics to sustain a long term uptrend. This focus on high-growth stocks gives investors the chance to capture outsized returns during bull markets by identifying “big winners” that make a major impact on a portfolio.
Combines Fundamental and Technical Analysis: Unlike strategies that only focus on fundamentals or technicals, CANSLIM combines both. It looks at financial metrics like earnings and sales growth as well as technicals like chart patterns and volume. This dual approach provides a more complete picture of each stock.
Emphasis on Market Direction to Protect Capital: CANSLIM strongly emphasizes the importance of the overall market trend, advising traders to stay in cash during bear markets or corrections to protect capital until better conditions return. O’Neil found that about 75% of stocks tend to follow the general market trend, so understanding the market direction is something you can’t skip.
Disadvantages of CANSLIM
While CANSLIM has many strengths, it’s not perfect and has some limitations, especially in bear markets. Here are the main drawbacks:
No Focus on Shorting Opportunities: For investors who want to profit in bear markets by shorting stocks, CANSLIM can feel limiting. The strategy avoids shorting individual stocks, instead recommending holding cash during downtrends. O’Neil believed shorting was risky and better suited to advanced traders. This makes CANSLIM a more conservative approach, which may not appeal to more aggressive traders who want to take advantage of shorting stocks in falling markets.
Bias Toward Growth Stocks: CANSLIM’s emphasis on high-growth stocks means it doesn’t look at value stocks or dividend-paying stocks, which don’t meet CANSLIM’s growth criteria. For more passive investors who want a diversified portfolio, CANSLIM’s focus on growth stocks may seem overly concentrated. William O’Neil is a strong believer in concentrating your portfolio on only the select strongest names and has famously said “Over-diversification is a hedge for ignorance.”
Putting it all together
The CANSLIM method by William O’Neil is a structured way to find high-growth stocks. It has highlighted major winners like Amazon, Apple, and Google. By using both fundamental and technical analysis, CANSLIM identifies companies with traits like strong earnings, high demand, and institutional support.
This method works best in bull markets and focuses on growth stocks. CANSLIM doesn’t support shorting or value investing, so it may not suit everyone. If you want a systematic stock-picking approach, CANSLIM is worth exploring.
CANSLIM is a growth-focused investing strategy developed by William O’Neil to help traders find stocks with high potential. Each letter in “CANSLIM” represents a specific criteria: Current Quarterly Earnings, Annual Earnings Growth, New Products or Management, Supply and Demand, Leader or Laggard, Institutional Sponsorship, and Market Direction.
In CANSLIM, Current Quarterly Earnings and Annual Earnings Growth are essential. O’Neil advises looking for companies with at least 25% growth in both areas. Consistent, accelerating earnings suggest strong product demand. This attracts institutional investors, which boosts the stock price.
CANSLIM stresses the importance of Market Direction. Even top stocks decline in a bear market. O’Neil advises following the market trend closely. Stay in cash during downtrends, and only buy when the market shows strength.
The “N” in CANSLIM stands for something new—like a product launch, entry into a new market, or a management change—that can give a company a competitive edge. New developments generate excitement, attract more customers, and boost earnings. William O’Neil recommends looking for companies with recent (within the last six months) innovations or leadership changes to ensure the impact is still fresh.
In a CANSLIM screener like Deepvue, look for customizable filters for each of the seven CANSLIM criteria, as well as features like RS ratings and industry group rankings. Deepvue also provides insights like earnings accelerations and analyst estimates directly under stock charts, which helps you make quicker decisions.
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