The "Little Book That Makes You Rich," authored by growth investing legend Louis Navellier, outlines a disciplined, eight-rule framework for identifying superior growth stocks. The strategy emphasizes consistency in earnings, revenue acceleration, and operational efficiency. After running this screen, Guidewire Software (NYSE:GWRE) emerges as a strong candidate, meeting many of these rigorous criteria. The following analysis examines how GWRE aligns with Navellier’s rules, drawing on the provided fundamental data and report.
Recent Performance and Fundamental Alignment
Guidewire Software provides a cloud-based platform for property and casualty insurers, a niche that is seeing strong demand as the industry digitizes operations. The company’s recent financial results demonstrate the kind of momentum Navellier’s method seeks. A key pillar of the strategy is the requirement for positive earnings revisions (Rule 1), which reflects growing analyst confidence. The data shows that the average EPS estimate for the next quarter has been revised upward by 16.93% over the last three months—a clear signal that analysts are increasing their expectations.
Another cornerstone of the book is the need for positive earnings surprises (Rule 2). GWRE has beaten analyst EPS estimates in 4 of the last 4 quarters, with an average beat of 42.58%. This pattern of consistently exceeding expectations is exactly the type of catalyst that can drive upward estimate revisions and, subsequently, stock price appreciation.
Growth and Operational Metrics
Navellier’s method places heavy emphasis on both increasing sales growth (Rule 3) and earnings growth (Rule 6). The company’s performance here is strong:
- Revenue Growth: The trailing twelve-month (TTM) revenue is up 23.72% year-over-year, and the most recent quarter showed a 24.05% increase compared to the same quarter last year, exceeding the required 20% threshold.
- Earnings Growth: TTM earnings per share have surged 95.05% year-over-year, with the latest quarterly EPS jumping 129.41% compared to the same quarter last year, far surpassing the 15% minimum.
Beyond top-line numbers, expanding operating margins (Rule 4) are critical because they show that growth is translating into greater profitability. Guidewire’s operating margin has improved significantly over the past year, by an extraordinary 11,742% (from a very low base), indicating that the company is gaining operating leverage as it scales.
Strong cash flow (Rule 5) is also a requirement. The company’s free cash flow grew by 187.04% over the past year, far exceeding the 15% threshold and providing the financial flexibility to fund future growth without diluting shareholders.
Earnings Momentum and Return on Equity
The strategy also looks for positive earnings momentum (Rule 7), meaning the current quarterly EPS growth rate should be accelerating compared to the same quarter a year ago. GWRE’s most recent Q2Q EPS growth of 129.41% dwarfs the previous year’s same-quarter growth of 10.87%, confirming strong acceleration.
Finally, a high return on equity (Rule 8) is used to measure how effectively the company generates profits from shareholder capital. Guidewire’s ROE stands at 12.54%, well above the 10% threshold set in the screen.
Valuation Metrics
While the growth picture is strong, Navellier’s method does not ignore valuation. The financial report rates GWRE’s overall fundamental strength a 5 out of 10, with the valuation sub-score dragging down the average. Specifically, the trailing Price/Earnings (P/E) ratio of 38.98 and a forward P/E of 32.04 indicate a premium valuation relative to the broader S&P 500 (which trades at a P/E of approximately 26.77 and forward P/E of 21.75). However, investors should weigh this against the impressive growth rates. The PEG ratio, which adjusts the P/E for earnings growth, suggests the valuation is "correct," and analysts project 26.95% annual earnings growth over the next few years, which could justify the higher multiple.
Summary from the Fundamental Report
The detailed FA report for GWRE highlights a company with excellent growth characteristics and solid health, though profitability and valuation are more mixed. The report notes that GWRE scores 8 out of 10 for growth, with both past and future earnings growth accelerating. Its health score of 7 out of 10 reflects a strong balance sheet, including an Altman-Z score of 6.64 (indicating low bankruptcy risk) and a current ratio of 2.93. The most significant weakness is the high valuation, which scores only 2 out of 10, showing that investors are paying a premium for the growth story.
Analyst Views and Outlook
The current market environment—the S&P 500’s long-term and short-term trends are positive—supports growth-oriented strategies like Navellier’s. Analysts generally view Guidewire positively, given its dominant position in a growing niche (P&C insurance software) and its successful transition to a cloud-based subscription model. The accelerating EPS growth and strong free cash flow provide a solid foundation for future analyst upgrades and potential price appreciation.
Finding More Opportunities
This screen is designed to uncover stocks with the kind of fundamental momentum that Navellier champions. For investors looking to replicate this strategy or discover other candidates that fit this profile, the full screener setup is available for exploration. View the complete list of stocks that pass this screen here.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own research before making investment decisions.