Growth investors are always looking for companies showing not just good performance, but increasing speed in important financial measures. A methodical way to do this search is in Louis Navellier’s The Little Book That Makes You Rich, which lists eight basic rules for finding excellent growth stocks. These rules center on earnings revisions, surprises, sales and earnings growth, margin improvement, cash flow, earnings speed, and return on equity. By using these rules as a filter, investors can sort the market for companies displaying these strong growth traits. One company that recently appeared from this method is Credo Technology Group Holding Ltd (NASDAQ:CRDO).
A Good Fit for the "Little Book" Rules
Credo Technology, a creator of high-speed connectivity solutions for data infrastructure, seems to fit well with Navellier’s growth rules. The company’s recent financial reports display fast speed across several of the strategy's main rules.
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Positive Earnings Revisions & Surprises: A central idea of the strategy is that upward revisions by analysts frequently point to good core business trends. Credo’s average EPS estimate for the next quarter has been moved upward by 86.1% over the last three months, a large sign of trust from the analyst community. Also, the company has reported four straight positive earnings surprises in its last four reports, with an average beat of 33%. Steady outperformance makes analysts reconsider their models, which can be a main force for stock price gains.
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Fast Sales and Earnings Growth: For a growth stock, top-line increase is essential. Credo’s revenue growth is remarkable, with a 272.1% rise in the latest quarter compared to the same quarter last year. On a yearly basis, revenue has increased by 224.2%. More significantly, this sales growth is moving effectively to the bottom line. The company’s earnings per share (EPS) increased by 857.1% quarter-over-quarter and by 713.6% year-over-year.
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Improving Profitability and Good Cash Flow: Navellier’s method stresses that sales growth should come with better efficiency. Credo’s operating margin has improved by a notable 272.3% over the past year, showing the company is growing profitably. This operational health is also seen in cash creation. The firm’s free cash flow increased by over 5,456% in the past year, giving important financial room to support future growth without needing outside money.
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Positive Earnings Speed and High Returns: The strategy looks for increasing speed, not just growth. Credo shows clear earnings speed, with its current quarterly EPS growth rate (857.1%) much higher than the growth rate from the similar quarter a year ago (600%). Lastly, the company provides a high return on equity (ROE) of 16.5%, passing the strategy’s lowest limit of 10% and showing effective use of shareholder money to create profits.
Fundamental Analysis Summary
A look at Credo’s wider fundamental situation, as described in its detailed ChartMill report, gives background for these excellent growth numbers. The report gives CRDO a total fundamental score of 7 out of 10. The company’s biggest strength is in its financial condition, where it gets a 9, supported by a clean balance sheet with no debt and very good liquidity ratios. Its growth score is a good 8, mirroring the fast past and expected future growth in both revenue and earnings.
Valuation shows a varied picture. While the stock’s price-to-earnings (P/E) ratio seems high in simple terms, it is viewed as fair compared to its high-growth industry group. The report states that its low PEG ratio—which includes growth—and its good profitability help support its current valuation. Profitability measures are sound, with group-leading margins, though the score is balanced by a record of uneven earnings in earlier years.
A Main Example for Growth Filtering
For investors using a strategy like Navellier’s, Credo Technology Group acts as a clear example of the kind of company the filter is made to find. It meets each point: rising analyst estimates, steady earnings beats, very fast growth in sales and profits, quickly improving margins, fast cash flow creation, clear earnings speed, and a high return on equity. While past results do not promise future outcomes, this combination of positive fundamental speed is exactly what growth investors look for.
The "Little Book" filter is made to methodically find companies displaying these features. Credo’s place in the results points out its current fit with a strict growth investing model. Investors wanting to review other companies that currently pass this multi-factor growth filter can see the complete list of results here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request to buy or sell any securities. The study is based on data and a particular investment strategy model; past performance is not a sign of future results. Investors should do their own research and talk with a qualified financial advisor before making any investment choices.
