For investors looking to combine solid earnings momentum with positive chart patterns, a method focusing on high-growth stocks in consolidation phases can be useful. This method looks for companies showing strong fundamental growth traits, such as accelerating earnings and sales, while also displaying technical health and a constructive price formation ready for a possible breakout. By using criteria like ChartMill's High Growth Momentum (HGM) Rating, Technical (TA) Rating, and Setup Quality Rating, investors can methodically find candidates that fit with methods made popular by CANSLIM and Minervini, which stress buying market leaders as they come out of periods of consolidation.
Fundamental Growth Momentum
Advanced Energy Industries (NASDAQ:AEIS) shows a strong profile for growth-oriented investors, receiving a High Growth Momentum Rating of 7. This score shows health across several important metrics that are vital for finding companies with solid earnings momentum.
- Earnings and Sales Acceleration: The company has shown major year-over-year growth. Trailing twelve-month (TTM) EPS grew over 72%, while TTM revenue rose by more than 21%. More notably, recent quarterly performance shows continued momentum, with the last three quarters reporting EPS growth rates of about 77%, 76%, and 112% compared to the same periods a year before.
- Consistent Earnings Surprises: A sign of positive momentum is a company's capacity to regularly beat analyst forecasts. AEIS has exceeded EPS estimates in each of the last four quarters, with an average surprise of over 12%. It has also surpassed revenue estimates in all four periods.
- Growing Profitability: Beyond top-line growth, the company is turning sales into profits more effectively. The profit margin in the most recent quarter was 10.7%, a notable increase from 6.1% and 5.7% in the quarters reported six and nine months ago. This pattern of margin growth is a positive sign for future earnings.
- Analyst Confidence: The growth narrative is backed by Wall Street, where analysts have been raising their estimates. Over the past three months, the average estimate for next year's EPS has been increased by over 10%, and revenue estimates have been raised by more than 7%.
These elements together describe a company not only growing, but doing so with quickening profitability and positive operational surprises, the precise mix of traits the HGM rating is meant to find.
Technical Health and Setup Quality
While solid fundamentals give the "why," the technical view gives the "when." According to ChartMill's detailed technical report, AEIS performs well here too, having a perfect Technical Rating of 10 and a good Setup Rating of 7.
- Technical Strength: A TA Rating of 10 is uncommon and shows outstanding technical condition. The report states AEIS performs better than 98% of all stocks and 91% of its peers in the Electronic Equipment, Instruments & Components industry. The stock is in a confirmed long-term uptrend, trading well above its key moving averages (50-day, 100-day, and 200-day), which are all increasing.
- Constructive Consolidation: The Setup Rating of 7 indicates the stock is in a period of consolidation after its major rise. The price has been trading in a range between about $280 and $350 over the past month, forming a base. This pause lets the stock absorb its gains and can create a new support level from which to try another move higher.
- Clear Risk Management Levels: The technical analysis points out specific support zones, the closest being between $307.43 and $310.15. This gives a logical area for a stop-loss order, providing a clear structure for risk management if the expected breakout does not happen.
- Market Context: Even as the wider S&P 500 shows a negative long-term trend, AEIS keeps a positive long-term trend of its own, showing clear relative strength, a key feature of market leaders.
Conclusion
Advanced Energy Industries represents a meeting of the criteria wanted by growth and momentum investors. Its high HGM Rating confirms a strong fundamental story of quickening earnings, growing margins, and positive estimate changes. At the same time, its top Technical Rating and positive Setup Rating show the stock is both a market leader and currently resting in a consolidation formation, possibly giving a specific entry point. This mix fits with the strategic aim of finding high-growth companies as they finish a period of pause before their next potential rise.
For investors wanting to find other stocks that meet this specific mix of high-growth momentum and technical breakout formations, more study can be done using this pre-configured screen.
Disclaimer: This article is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. The analysis is based on data provided and reflects conditions at a specific point in time. Investors should conduct their own due diligence and consider their individual financial situation and risk tolerance before making any investment decisions. Past performance is not indicative of future results.