Investors looking to find stocks that could see major price increases frequently use methods that join strict technical and fundamental study. One example is the method made famous by Mark Minervini, which centers on locating good stocks in strong upward trends. The heart of this method is the "Trend Template," a group of technical rules made to confirm a stock is in a verified stage 2 advance. This is combined with a detailed look at fundamental condition, searching for firms showing powerful and speeding earnings and sales growth. By linking a stock's price momentum with its basic business momentum, the method seeks to identify leaders before they make their biggest climbs.
A Textbook Technical Setup
Encore Capital Group Inc (NASDAQ:ECPG) offers a strong example for the technical part of this method. An examination of its chart and main numbers shows it meets each point of the Minervini Trend Template, indicating a stock in a commanding uptrend with solid institutional backing.
- Trend Alignment: The stock's price is trading far above its increasing 50-day, 150-day, and 200-day simple moving averages (SMAs). Importantly, the shorter 50-day SMA is above the 150-day SMA, which is above the 200-day SMA. This "stacked" order of moving averages is a standard sign of a sound, lasting uptrend.
- Proximity to Highs: ECPG is now trading within 6% of its 52-week high of $79.52, easily inside the Template's rule of being within 25% of the high. At the same time, the present price is about 161% above its 52-week low, well past the 30% mark. This pairing shows the stock is displaying force, not bouncing back from a low point.
- Market Leadership: Possibly most notable is the stock's relative strength (RS) ranking of 95.5. This means it has done better than 95.5% of the whole market over the last year. In Minervini's system, stocks with RS rankings above 70, and particularly those in the 90s, are seen as market leaders, often the first to rise and lead gains.
This technical view is not random. The Trend Template is built to remove stocks in poor or corrective stages, making the investor concentrate only on those where supply is being taken in and demand is clearly dominant. ECPG’s fit with these rules implies it is in that desired stage 2 advance.
The Fundamental Engine: High-Growth Momentum
A strong chart is only part of the account. For a climb to last, it needs to be supported by fundamental gains. This is where the "High Growth Momentum" part becomes important. ECPG’s financial numbers show a firm going through a strong speed-up in its main business, giving the fundamental driver that often starts a large price trend.
- Explosive Earnings Growth: The company's earnings per share (EPS) growth is remarkable. Year-over-year EPS growth is at 117%, and the newest quarterly growth jumped by 124.7%. This is not a single event; the firm has exceeded analyst EPS forecasts in each of the past four quarters by an average of more than 63%.
- Strong Sales Expansion: This earnings jump is powered by major revenue growth. Top-line growth for the trailing twelve months is a solid 34.4%, with the latest quarter growing by 78.3%. Like earnings, revenue has regularly beaten forecasts.
- Analyst Confidence: The market is noticing this momentum. Analyst forecasts for next year's earnings have been raised by over 20% in just the last three months, showing increasing belief in the company's future earnings.
In the Minervini method, "big earnings draw big notice." This fundamental speed-up is the driver that pulls institutional investors, whose buying can feed the strong price climbs the technical setup expects. The better profit margins and higher estimate changes add more proof of the quality of the growth, suggesting it is effective and probable to keep going.
Technical Condition and Current Setup
An examination of the ChartMill Technical Report for ECPG gives a short, number-based summary that supports the manual study. The report gives the stock a full Technical Rating of 10 out of 10, stating its steady good results across both short and long-term periods and its leading place in the Consumer Finance field. The report confirms the high relative strength, the new 52-week high, and the helpful volume patterns seen during the recent upward climb.
However, the report also gives a warning point important for entry timing. While the technical condition is very good, the Setup Quality rating is now a 3. This shows that after its strong recent climb, the stock may be stretched in the near term and is not now forming a tight, low-volatility pause pattern, such as the "Volatility Contraction Pattern" (VCP) Minervini likes for best entry points. The report summary suggests it may be wise to wait for a time of pause or a drop to a main support area before thinking about a new position, allowing for a more favorable risk/reward setup.
Finding Similar Opportunities
For investors wanting to use this joined technical and fundamental filter to discover other possible leaders, the steps can be made simpler. The set "High Growth Momentum + Trend Template" filter automatically uses these Minervini-based rules.
You can locate more stocks that fit these strict growth and trend rules by checking the High Growth Momentum + Trend Template screen on ChartMill.
Disclaimer: This article is for information and learning only. It is not advice to buy or sell any security. The study is based on given data and certain methods, and past results do not guarantee future outcomes. Always do your own complete research and think about your personal money situation and risk comfort before making any investment choices. Please read our full disclaimer here.