Canslim: What Is Canslim Methodology, Investing, Strategy

Evaluating equities in today’s share market involves every trader using strategies to get ahead more successfully. Some investors and traders depend on technical analysis, while others think nothing can be compared with fundamental analysis.

Lately, there are some smart investors who have always implemented strategies that combine fundamental and technical analysis. That’s where the role of CANSLIM comes into the picture. So, excited to learn more about CANSLIM? This post takes you through the Canslim methods and strategies.

What is canslim – An overview 

What is Canslim?

Well, what was developed in the US by William J. O’Neil has now become popular in the Indian stock market. Despite being a seasoned Indian investor, you may find CANSLIM an interesting concept. After all, Canslim helps traders shortlist companies suitable for growth investing. 

The method focuses on recognising high-performing stocks with growth potential. Simply put, CANSLIM analyses specific aspects. Here are a few words on its meaning and definition. 

Meaning and definition of CANSLIM

CANSLIM isn’t just a word but is an acronym for seven steps. As an investor, you can implement these simple steps if you want to achieve excellent growth potential. The following points give an insight into what each letter in the word CANSLIM means:

C

C refers to a company’s current quarterly earnings per share. When you look forward to investing in a company, always compare the organisation’s current earnings (quarterly) per share figure of the company with the same quarter in the previous fiscal year. So, if the growth percentage is higher, investing in the company is a better solution. Usually, it’s advisable to choose companies that have at least a 20% growth rate. It’s the canslim investment criteria.

A

A is the annual earnings growth. This particular revenue is generated by the company. Thus, it should grow with each passing year. Maximum investors use the CANSLIM to look for companies with annual earnings growth of a minimum of 20-2% (for three to five years) or even more. 

N

N indicates new service, product, event or management. The company must be on a constant path to development. The establishment’s stock price may not be appreciated without launching new services or products. On the other hand, when the company develops products, its stock price experiences a huge improvement.

S

S here means the supply. Ideally, a company’s stock must be scarce in supply with strong demand. That might create a scenario where stocks enter the massive demand phase, pushing the price higher. Those companies purchasing their shares from the market will reduce the supply of their stock. That creates more demand and a price rise. 

L

L is the ‘leading’ –an investor must look for ways to invest in the leading company. This particular tactic suggests using technical indicators such as RSI to recognise leading companies.

I

Next comes the letter I, which refers to institutional sponsorship. Notably, a trader or investor must look for various institutional shareholding patterns of a particular establishment before investing. So, a company worth investing in must have an improved institutional ownership level. 

M

Finally, M is the ‘market direction. Various companies enlisted in the market may follow some current direction or market trend. So, an investor must thoroughly analyse market movements with broad market indices. That confirms the strong uptrend before investing in a particular firm.

Analysing the formula

Now, what do you mean by the CANSLIM strategy and formula? Simply put, it’s an investment strategy that aims to recognise growth firms with fundamentals and rising price momentum. 

Due to this, the CANSLIM formula performs the best. It helps you while you look for various approaches to investing in growth stocks. Using the CANSLIM formula helps you figure out how to invest in a growth stock. Suppose you have a long investment horizon. In such a case, the technique is recommended. 

Always remember that the CANSLIM formula has certain restrictions and doesn’t ensure overall success. You need to make investment decisions. So, research and analysis should be conducted to reduce risk.

CANSLIM – What are the benefits of this tactic?

CANSLIM is one such bullish technique that’s not suitable for every investor. The prime motive is to invest in high-growth stocks before institutional funds are invested. Enlisted below are the perks of CANSLIM:

Companies with robust fundamentals

CANSLIM helps in finding companies that follow solid fundamentals. The rising earnings and revenue can be excellent signs of being a financially sound firm with room for improvement. 

Positive price movement

CANSLIM focuses on positive price momentum. So, that suggests that the company may be undervalued, with the possibility of increasing in value. 

Diversifying portfolio 

CANSLIM  helps you spread out the investment around various industries. As a result, it reduces the risks and uncertainties of your portfolio.

Various opportunities 

Furthermore, CANSLIM analyses emerging markets and companies with investment opportunities. They can take advantage of the present-day trends.

Investment for a long term 

This tactic is also intended for long-term investors. At the same time, it reduces the risks associated with investments. 

Finding high-quality businesses

CANSLIM identifies companies that have witnessed increased profitability and revenue. Overall, the trading volume also increases with time. That indicates the business may be in higher demand among smart investors.

A final note

So, you have finally learned the meaning and definition of CANSLIM. This post also mentions the benefits of the CANSLIM tactic and how it can help investors. Considering the above information, this type of investment can help investors learn about stocks that come with growth potentials.

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