Investors looking for a methodical way to find stocks with high growth potential frequently use proven methods. One framework is presented in Louis Navellier's "The Little Book That Makes You Rich," which summarizes growth investing in eight main rules centered on earnings momentum, sales increases, and rising profitability. The method tries to find companies showing quickening financial results, an indicator that can come before major gains in stock price. A recent filter using these rules has identified CNX Resources Corp (NYSE:CNX) as a firm deserving more attention from investors focused on growth.
Fitting the "Little Book" Rules
The foundation of Navellier's method is a group of numerical filters made to identify positive momentum in a company's financial reports. CNX Resources, an independent natural gas development and production company, seems to fit a number of these strict standards based on the latest information.
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Positive Earnings Revisions & Surprises: A key part of the approach is analyst opinion. CNX displays upward trend, with the average EPS estimate for the next quarter increased by about 5.8% over the past three months. More notably, the company has reported a positive earnings surprise in every one of the past four quarters, with an average beat above 48%. Steady outperformance makes analysts adjust their models, which can be a strong driver for the stock.
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Strong Sales and Earnings Growth: Quickening growth is essential. CNX displays solid top-line increase, with year-over-year revenue growth of 23.5% and very high quarter-over-quarter sales growth of almost 347%. This is combined with good bottom-line momentum, showing a 40.8% year-over-year EPS growth and a 17.5% rise in the latest quarter compared to the same quarter the previous year.
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Increasing Profitability and Cash Flow: Growth is most beneficial when it becomes more profitable. CNX shows this through a sharp 186% year-over-year rise in its operating margin, meaning the company is turning sales into operating income more effectively. Also, its free cash flow, important for funding growth and benefiting shareholders, rose by about 94% over the last year.
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Earnings Momentum and Return on Equity: The method looks for acceleration, not just growth. For CNX, the present quarterly EPS growth rate of 17.5% is higher than the growth rate from the same quarter a year before, which was negative. Lastly, the company achieves a solid return on equity (ROE) of 14.6%, above the method's 10% minimum and showing good use of shareholder money.
Fundamental Condition and Valuation Background
Outside the specific filter rules, a wider fundamental review gives background. According to ChartMill's detailed report, CNX gets a varied but notable overall fundamental score of 5 out of 10. The company's strong points are clear in profitability, where it scores a 7, having margins and returns that place it well within the competitive Oil, Gas & Consumable Fuels industry. Its growth score of 6 is backed by the strong past performance mentioned earlier.
Points for investor review are in financial health, where the score is a lower 3. While the company handles debt levels similar to its peers, questions are noted about liquidity measures like its current and quick ratios. From a valuation view, with a score of 5, CNX seems fairly valued. Its P/E and forward P/E ratios are under the current S&P 500 averages and are in line with its industry, indicating the market may not completely account for its recent growth path.
A Prospect for Growth-Oriented Portfolios
For investors using a method like Navellier's, CNX Resources offers a notable example. The company is not only growing, it is displaying signs of quickening growth and operational gains across several important financial areas. It meets the requirements for earnings surprises, analyst increases, and fast sales and cash flow growth, all signs the "Little Book" method is built to identify early.
It is important to note that such filters are a beginning for more investigation. The financial health scores show the need to understand the capital-heavy character of the energy sector and the company's particular balance sheet details. Also, while the near-term direction for the wider market is good, investors must think about commodity price cycles and their effect on future results.
Interested in reviewing other stocks that meet this growth-oriented filter? You can locate and adjust the "Little Book" screening template here: View the Screening Results.
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Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The "Little Book" method is one of many investment approaches, and past results of a filtering method do not guarantee future outcomes. Investors should do their own complete research and think about their personal financial position and risk comfort before making any investment choices.
