For investors looking to join the momentum of a technical breakout with the basic strength of a company with sound fundamentals, a method concentrating on solid growth stocks with positive technical formations can be persuasive. This method tries to find companies that are not only increasing their earnings and revenue at a rate above the norm but are also near a possible price increase as shown by chart formations. By selecting for stocks with good fundamental growth scores together with acceptable financial condition and earnings, investors can search for chances where market momentum might be matching a company's business achievements. The technical "formation" or breakout pattern then acts as a possible catalyst, indicating interest from large investors and a likely extension of the direction.
AAON INC (NASDAQ:AAON) recently appeared from such a screening process. The maker of semi-custom heating, ventilation, and air conditioning (HVAC) systems presents an example where solid past growth measures meet a particular technical formation, deserving closer examination from investors focused on growth.
A Base of Solid Growth
The main appeal for growth investors is found in AAON's financial increase. The company's fundamental picture, explained in its ChartMill Fundamental Analysis Report, shows a notable growth score of 7 out of 10. This rating is fueled by notable past results and firm future projections.
- Past Speed: Over the last few years, AAON has shown forceful revenue increase, averaging 20.67% each year. This greatly exceeds many others in the industry.
- Future Projections: Analysts predict this growth path will persist, with estimated yearly EPS increase of 18.22% and revenue increase of 15.82% in the next few years.
- Earnings and Condition: Backing this growth story are acceptable scores for earnings (6/10) and financial condition (6/10). The company holds a solid balance sheet with good liquidity ratios, a Current Ratio of 3.04 and a Quick Ratio of 2.03 show sufficient ability to cover near-term debts. This financial steadiness is important for a growth company, as it supplies the base to support increase without high risk.
It is significant to recognize that this growth exists with a high valuation, with AAON's Price-to-Earnings ratio positioned much higher than both industry and wider market averages. For growth investors, this higher multiple is often accepted when supported by outstanding and lasting increase, which seems to be the situation here based on the company's history and predictions.
The Technical Formation: A Bull Flag Taking Shape
While fundamentals supply the "reason," technical analysis can give clues about the "timing." AAON's present chart formation is what identified it in the screen. As stated in the ChartMill Technical Analysis Report, the stock is currently displaying a bull flag pattern.
- Pattern Behavior: A bull flag usually develops after a forceful upward price movement (the flagpole), followed by a time of consolidation or a small downward drift on less volume (the flag). This formation indicates a pause in the direction before a possible continuation of the earlier upward movement.
- Present Situation: AAON's price activity has been consolidating recently after a time of strength. The technical report mentions a main resistance area just above the present price, beginning near $94.14. A clear breakout above this resistance on greater volume could be seen as the pattern confirmation, giving a possible entry signal for traders following momentum.
- Support and Risk Control: The report also points out a support area below the present price around $91.06. This level can act as a sensible place for a stop-loss order, aiding to outline and control risk if the expected breakout does not happen.
Why This Pairing Is Significant
The combination between these fundamental and technical elements is the core of the method. A good growth score by itself does not assure instant price gain; a stock can be fundamentally sound but stay unpopular with the market. On the other hand, a technical breakout without fundamental backing can be a short-term, speculative action.
By finding a company like AAON, which displays:
- Fundamental Reason: Confirmed and predicted high growth with acceptable financial condition.
- Technical Catalyst: A recognizable chart formation (bull flag) indicating gathering interest and a possible momentum change.
Investors can search for chances where the likelihood of a maintained upward movement may be increased. The fundamental strength gives a reason for the direction, while the technical formation supplies a tactical point for evaluation.
Locating Comparable Chances
AAON shows how joining growth fundamentals with technical analysis can identify particular investment ideas. For investors wanting to use this process to discover other possible candidates, the ready-made "Strong Growth Stock Technical Setups" screen is available to use. You can access this screen here to view more results.
Disclaimer: This article is for information and learning only and does not form investment guidance, a suggestion, or a bid or request to buy or sell any securities. The examination is based on data and reports supplied by ChartMill, and past results are not a guide to future outcomes. Investing in stocks includes risk, including the possible loss of original investment. You should perform your own investigation and talk with a certified financial consultant before making any investment choices.
