Growth investing strategies often aim to find companies with strong momentum in their business fundamentals and stock price performance. One systematic method is the CAN SLIM approach, made popular by William O'Neil. This method mixes strict fundamental analysis, focusing on earnings acceleration, sales growth, and profitability, with important technical indicators like relative strength and market leadership to find possible high-growth investments. The aim is to identify market leaders before their prices rise significantly.
A recent filter using the main CAN SLIM rules has identified CELESTICA INC (NYSE:CLS) as a possible candidate. The Toronto-based provider of supply chain solutions seems to fit several parts of the method, presenting an interesting profile for investors focused on growth.
Matching the Main CAN SLIM Fundamentals
The "C" and "A" in CAN SLIM stress current and annual earnings power. Celestica shows solid momentum here, passing the high limits usually set by users.
- Current Quarterly Growth: The system searches for rising quarterly earnings and sales. Celestica's latest quarter shows a 70.3% year-over-year increase in earnings per share (EPS) and a 43.6% rise in revenue, well above the common minimum targets of 20-25%.
- Annual Earnings Increases: A record of solid annual growth is needed to confirm consistency. Celestica's three-year EPS compound annual growth rate (CAGR) is about 46.9%, indicating maintained, high-level results.
- Return on Equity (ROE): Profitability is judged by ROE. With a ROE of 37.6%, Celestica not only meets but greatly passes the usual goal of 17%, showing very efficient use of shareholder equity.
The "S" rule, about supply and demand, includes a review of financial health. Celestica has a moderate debt-to-equity ratio of 0.34, which is under the filter's limit of 2, pointing to a manageable capital structure that does not depend too much on debt.
Leadership and Institutional Sponsorship
The "L" and "I" parts focus on market recognition and ownership by professional investors.
- Market Leader (L): CAN SLIM looks for stocks that lead, not follow, in price performance. Celestica's relative strength rating of 94.75 shows it has performed better than nearly 95% of all stocks in the market over the past year, a sign of a true market leader.
- Institutional Sponsorship (I): The method prefers stocks with increasing institutional ownership, but not so high that all possible buying is done. Celestica's institutional ownership is about 73.7%, which is below the 85% maximum used in the filter. This indicates there is still space for more institutional buying, which can support continued demand.
Technical and Fundamental Summary
A look at Celestica's separate reports gives a balanced view. The company's fundamental analysis report gives a score of 6 out of 10. It notes "excellent" growth and profitability, especially the high returns on equity and invested capital. The main areas of care relate to valuation measures, which seem high on a normal P/E basis, and some liquidity ratios that are behind industry peers. The report states that the high growth rate may support a higher valuation.
From a chart view, the technical analysis report gives a mixed short-term picture with a score of 5 out of 10. While the long-term trend is still positive, the short-term trend has become negative, and the stock is now trading closer to the bottom of its recent range. However, the report also sees a consolidation pattern with lower volatility, indicating a possible setup for a new move if the stock can pass above resistance. The very high relative strength stays a key supporting technical detail.
A Candidate for More Study
Based on the numerical filters from the CAN SLIM method, CELESTICA INC (NYSE:CLS) makes a good case for addition to a growth investor's watchlist. It shows very strong current growth, a firm history of annual earnings increases, high profitability, leading price performance, and a positive institutional ownership profile. While its valuation and short-term technical position need careful thought, its fit with the main growth-seeking ideas of CAN SLIM is evident.
For investors looking to find other companies that pass similar strict growth and momentum filters, you can review the set O'Neill CANSLIM High Growth screen.
Disclaimer: This article is for information only and is not investment advice, a suggestion, or an offer to buy or sell any security. The study is based on data and a set filtering method; it is not a replacement for your own complete research and due diligence. Investing in stocks has risk, including the possible loss of principal.
