Credo Technology Group Holding Ltd (NASDAQ:CRDO) Fits a Classic High-Growth Stock Screen

Growth investing methods often look for companies that are not only increasing in size, but are doing so with gathering speed and better financial performance. One organized method for locating these stocks is described in Louis Navellier’s The Little Book That Makes You Rich, which lists eight basic rules meant to find leading growth stocks. These rules concentrate on upward earnings adjustments and surprises, rising sales, widening margins, solid cash flow, earnings increases, upward earnings momentum, and a high return on equity. A recent filter using these strict rules has identified Credo Technology Group Holding Ltd (NASDAQ:CRDO) as a notable option for investors using this approach.

Fitting the "Little Book" Rules

Credo Technology seems to perform well across many rules from Navellier’s method. The supplied filter data shows notable strength in several important areas:

• Upward Earnings Adjustments & Surprises: A key part of the method is that higher estimates from analysts frequently point to good core business patterns. For CRDO, the average EPS forecast for the next quarter has increased by 27.7% over the past three months. Also, the company has reported a positive earnings surprise in all of the past four quarters, with an average beat of 33%. Steady above-estimate results makes analysts adjust their models, which can be a significant driver for the stock.

• Strong Sales and Earnings Increases: The method requires not just increase, but major and frequently speeding increase. CRDO’s numbers are prominent:

  • Revenue increased 224.2% year-over-year and 272.1% quarter-over-quarter.
  • Earnings per share increased 713.6% year-over-year and a notable 857.1% quarter-over-quarter.

• Widening Profitability and Solid Cash Flow: Increasing sales are most useful when paired with widening margins, showing operational effectiveness. CRDO’s operating margin has increased by over 272 percentage points in the last year. At the same time, the company’s free cash flow—an important gauge of financial strength and self-funding ability—rose by 5,456.5% over the same period.

• Upward Earnings Momentum and High ROE: The method looks for speeding up, meaning current increase rates should exceed earlier periods. CRDO’s quarterly EPS increase of 857.1% greatly exceeds the 600% increase from the similar quarter a year ago, confirming solid upward momentum. Lastly, with a Return on Equity (ROE) of 16.5%, the company meets the method’s high standard for creating profits on shareholder capital.

Basic Financial Strength and Valuation Setting

A wider basic analysis of Credo Technology matches the filter results, giving the stock a total score of 7 out of 10. The analysis notes a sound financial strength profile, supported by a clean balance sheet with no debt and very good liquidity measures. Profitability, while scored as medium, displays leading margins within the competitive semiconductors field.

The valuation view is varied, a typical feature for high-increase companies. While standard measures like the Price-to-Earnings ratio seem high compared to the wider market, this is partially explained by the company’s outstanding increase path. Analysts forecast earnings to increase almost 70% each year in the coming years, which is shown in a more moderate PEG ratio—a measure that includes increase—implying the higher price may be acceptable for the available increase.

Investment Case for Growth Investors

For investors using a method like Navellier’s, Credo Technology is a clear example of a high-momentum growth stock. The company is not simply increasing; it is doing so at a speeding rate across both sales and profits while greatly improving its cash production and operational effectiveness. Its debt-free balance sheet takes away financial risk from the situation, letting investors concentrate only on the performance of its increase plan in the high-speed connectivity sector. The mix of steady earnings surprises and climbing analyst estimates forms a positive cycle that often helps further stock price gains.

Reviewing Other Options

Credo Technology is one of a few stocks that currently meet the strict "Little Book" filter. Investors wanting to see the complete list of companies fitting these eight growth rules can view the filter here.

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Disclaimer: This article is for information only and is not financial guidance, a suggestion, or an offer to buy or sell any securities. The data and study provided are from public information and particular filter rules. Investors should do their own complete study and think about their personal financial situation and risk comfort before making any investment choices.