Investors looking to find market leaders with high growth potential frequently use systematic methods that combine technical and fundamental analysis. One well-known method is the strategy created by Mark Minervini, a two-time U.S. Investing Champion. His method, called Specific Entry Point Analysis (SEPA), centers on finding stocks that are already in clear uptrends and supported by improving fundamental growth. The objective is to buy these stocks at exact, lower-risk moments as they move out of consolidation patterns, trying to capture the most active part of their rise. A central tool in this structure is the Minervini Trend Template, a fixed group of technical filters made to confirm a stock is in a clear, strong uptrend before it is reviewed for a trade.
Fabrinet (NYSE:FN) recently appeared from a screening process that joins this strict technical template with a focus on strong-growth fundamentals. This two-part filter method tries to find companies that are both showing better price strength and displaying the earnings and sales progress that usually support continued rallies.
Technical Strength: Matching the Minervini Trend Template
The Minervini Trend Template is constructed on a base of moving average arrangements and relative strength, made to filter for stocks in a definite Stage 2 uptrend. Fabrinet's present chart shows a classic match with these conditions:
- Price Above Key Moving Averages: FN's last price of $499.61 trades far above its rising 50-day ($468.05), 150-day ($395.13), and 200-day ($353.71) simple moving averages (SMAs). This order is a main requirement, showing continued buying interest across all major timeframes.
- Positive Moving Average Slopes: Importantly, these moving averages are all moving upward. The 200-day SMA, a measure for the long-term trend, has increased from a prior value of $352.15 to its current $353.71, confirming a sound long-term path.
- Correct Moving Average Arrangement: The template needs the shorter-term averages to be above the longer-term ones. FN meets this with its 50-day SMA located above both the 150-day and 200-day SMAs, and the 150-day SMA above the 200-day SMA. This ordered, rising arrangement is a standard sign of a strong uptrend.
- Nearness to Highs: FN is trading within 6% of its 52-week high of $531.22, meeting the template's condition to be within 25% of the yearly high. At the same time, the stock is more than 236% above its 52-week low of $148.55, well past the 30% limit. This indicates the stock is showing strength, not bouncing back from serious lows.
- Better Relative Strength: Possibly most significant is FN's ChartMill Relative Strength (CRS) score of 95.41. This means the stock has done better than about 95% of the whole market over the last year. Minervini notes that real market leaders regularly show high relative strength, as it points to institutional buying and a stock's capacity to separate from general market declines.
This combination of technical factors indicates FN is in a confirmed, leading-position uptrend, making it a suitable subject for more review within the Minervini structure.
Fundamental Progress: The Driver for Strong Growth
While the Trend Template finds the "how" of a stock's price action, the "why" often exists in its fundamental results. The screening process also assessed FN using a High Growth Momentum (HGM) rating, which examines earnings and sales patterns. Fabrinet's core business numbers show the sort of improvement that growth investors look for:
- Strong Earnings Growth: The company's latest quarterly earnings per share increased 28.7% compared to the same quarter last year. This marks a clear improvement from the growth rates of 22.2%, 9.96%, and 5.44% seen in the three earlier quarters, in order. This sequence of improving quarterly EPS growth is a significant fundamental driver.
- Solid Sales Growth: Revenue growth is also notable. Last quarter's sales rose 35.9% year-over-year, following good growth of 21.6%, 20.8%, and 19.2% in the previous quarters. This steady double-digit increase shows solid demand for Fabrinet's optical packaging and manufacturing services.
- Positive Estimate Changes: Analyst outlook is improving, a key supporting signal. Over the last three months, the average estimate for next year's earnings has been increased by 8.33%, and revenue estimates have been raised by 9.29%. These upward changes often come before more institutional buying and price gains.
- Sound Profitability: The company keeps steady profit margins, with the last reported quarter at 9.81%. This shows a capability to turn its solid revenue growth into earnings effectively.
For students of the Minervini SEPA strategy, these fundamentals supply the important "fundamental" support. The strategy states that the largest stock winners are nearly always backed by solid, and often improving, earnings and sales growth before their biggest price gains start.
Technical Condition and Setup Review
Beyond the basic Trend Template filters, a close technical report on Fabrinet gives a more detailed level of analysis. The report gives FN a top-level Technical Rating of 10 out of 10, reflecting very good health across many timeframes and measures. The long-term and short-term trends are both rated as positive, and the stock is recognized for its consistent, stable performance over the past year.
The report also notes a Setup Rating of 8, showing the stock is presently in a consolidation period after its recent rise. The analysis finds a defined support area between $497.58 and $498.37, proposing a reasonable zone for a protective stop-loss order if a trade is started. Also, the report mentions a recent "Pocket Pivot" signal, a price increase on higher volume than any down volume day in the prior two weeks, which is frequently seen as a sign of institutional buying without a formal breakout.
A complete view of the technical picture, including found support and resistance levels, is available in the detailed Fabrinet Technical Analysis Report.
Conclusion
Fabrinet offers a strong example of a stock that matches a strict growth and momentum investment strategy. It successfully meets the strict technical filters of the Minervini Trend Template, verifying its position as a market leader in a solid uptrend. At the same time, its improving earnings and sales growth, along with positive analyst changes, supply the fundamental driver that strong-growth investors search for to maintain a major rise. The mix indicates FN has both the technical shape and fundamental driver that strategies like Minervini's SEPA method aim to use.
For investors wanting to find other companies that display this effective mix of technical strength and fundamental progress, the screening process that found Fabrinet can be a beginning. You can review more possible choices by seeing the full 'High Growth Momentum + Trend Template' screen here.
Disclaimer: This article is for informational and educational purposes only. It is not a recommendation to buy or sell any security. The analysis is based on data and a specific investment methodology, but past performance is not indicative of future results. Always conduct your own due diligence and consider consulting with a qualified financial advisor before making any investment decisions.
