Clearwater Analytics (NYSE:CWAN) Combines Strong Fundamentals with Bullish Technical Setup

Combining technical and fundamental analysis gives investors a strong methodology for identifying stocks with both good underlying business performance and positive price momentum. This dual method helps filter out companies that may appear attractive in theory but lack market confirmation, or those showing technical strength without the fundamental growth to support it. The strategy focuses on finding securities showing good revenue and earnings expansion, healthy profitability metrics, and sound financial footing, all while demonstrating constructive chart patterns that indicate potential breakout opportunities.

Clearwater Analytics Holdings, Inc. (NYSE:CWAN) appears as a notable candidate through this screening methodology. The company provides web-based investment portfolio accounting, reporting, and reconciliation services through its unified platform that integrates portfolio management, trading, accounting, and analytics. Serving insurers, asset managers, banks, corporations, and governments, Clearwater operates in the growing fintech and financial data analytics space, a sector with significant growth tailwinds as institutions increasingly demand sophisticated data management solutions.

Fundamental Strength Supporting Growth Thesis

Clearwater's fundamental profile shows several characteristics typical of good growth companies:

• Exceptional Growth Metrics: The company shows outstanding historical and projected growth, with revenue increasing 36.68% over the past year and maintaining a 21.88% annual growth rate over several years. Even more notably, earnings per share have grown at a notable 110.89% annual rate historically, with analysts projecting continued good EPS growth of 28.57% annually going forward. This acceleration in both top-line and bottom-line growth indicates the company is successfully scaling its operations while improving profitability.

• Profitability Improvements: Despite being a relatively young public company (having IPOed in 2021), Clearwater shows improving profit margins with a 73.71% profit margin that ranks in the top 5% of its software industry peers. The company has achieved positive earnings and operating cash flow over the past year, signaling a transition toward sustainable profitability, a critical milestone for growth companies.

• Adequate Financial Health: With a ChartMill Financial Health rating of 5/10, the company maintains reasonable liquidity with current and quick ratios both at 2.02, indicating sufficient short-term financial flexibility. While the debt-to-FCF ratio of 10.33 indicates some leverage, the Altman-Z score of 3.72 indicates no immediate bankruptcy concerns, placing the company in a stable financial position to continue funding its growth initiatives.

The company's valuation, while expensive on traditional metrics with a P/E ratio of 40.38, appears more reasonable when considering its growth trajectory. The PEG ratio, which factors in growth expectations, suggests the valuation may be justified given the company's exceptional expansion rates, a common characteristic of successful growth stocks that often trade at premium valuations due to their above-average growth prospects.

Technical Setup Suggesting Momentum Shift

From a technical perspective, Clearwater presents an interesting setup despite its difficult price action over the past year:

• Consolidation Pattern Formation: The stock has been trading in a relatively wide range between $17.98 and $21.00 over the past month, indicating a period of consolidation after previous declines. This basing pattern often comes before significant moves as supply and demand reach equilibrium.

• Support and Resistance Levels: Technical analysis identifies important support around the $19.24-$19.37 zone, formed by multiple trendlines on weekly charts. This creates a potential risk management level for traders. Meanwhile, resistance sits between $20.19-$20.39, which the stock is currently testing. A breakout above this resistance zone could indicate renewed momentum.

• Setup Rating Outperformance: Despite the overall technical rating of 0/10 reflecting the stock's poor performance relative to the broader market, the setup rating of 7/10 highlights the potential opportunity forming. The reduced volatility and consolidation pattern create conditions favorable for a potential breakout, particularly if fundamental improvements translate into renewed investor interest.

The combination of good fundamental growth characteristics with a technical setup indicating potential momentum shift makes Clearwater Analytics an interesting case study in growth investing. The company operates in a growing market segment, shows accelerating financial performance, and shows technical signs that the significant decline from its 52-week high of $35.71 may be finding stabilization around current levels.

Why These Criteria Matter for Growth Investing

The screening criteria used to identify Clearwater Analytics align with proven growth investing principles. Good growth ratings ensure the company is increasing rapidly enough to potentially justify premium valuations, while decent profitability and health ratings provide assurance that this growth is sustainable rather than fueled by excessive risk-taking. The technical setup component adds a timing element, helping identify when market perception may be shifting toward recognition of the company's fundamental improvements.

For growth investors, this combination addresses two critical challenges: avoiding value traps where companies show good fundamentals but lack market momentum, and avoiding momentum traps where technical patterns lack fundamental support. By requiring strength in both areas, the methodology looks for companies with the highest probability of delivering sustained capital appreciation.

Detailed fundamental analysis and technical analysis reports provide deeper insights into Clearwater's financial metrics and chart patterns.

Investors interested in exploring similar opportunities can find additional candidates through our Strong Growth Stocks with Good Technical Setup Ratings screen, which regularly updates to reflect changing market conditions and new emerging patterns.

Disclaimer: This analysis is provided for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.