Investors using a structured, rule-guided method for growth investing have often used strategies like the one described in Louis Navellier’s The Little Book That Makes You Rich. The process centers on finding companies with solid and increasing fundamental strength measured by eight specific factors, including favorable earnings revisions and surprises, good sales and earnings gains, widening margins, healthy cash flow, and elevated returns on equity. This organized filter tries to select stocks where company results are not only solid, but clearly getting better, a possible indicator of returns that may exceed the market.
A recent search using these exact conditions identified Lumentum Holdings Inc (NASDAQ:LITE) as a stock for more detailed study. The optical and photonic products company, which works in cloud networking and industrial laser areas, seems to fit many of Navellier’s main growth principles.
Aligning with the "Little Book" Conditions
According to the supplied screening data, Lumentum shows clear strength in the exact measurements the strategy targets:
- Favorable Earnings Revisions & Surprises: Analysts have increased their EPS forecast for the coming quarter by more than 4% in the past three months, an important sign of better forward outlook. Also, the company has exceeded consensus EPS forecasts in all of the past four quarters, with an average surprise over 10%. Steady overachievement can lead analysts to raise future forecasts, a pattern the strategy aims to use.
- Strong Growth Measurements: The company is displaying marked speed-up in its main financial numbers, a central idea of the growth investing view.
- Quarterly sales increased 65.5% year-over-year.
- Quarterly earnings per share jumped 297.6% against the same quarter last year.
- Trailing twelve-month (TTM) revenue and EPS increased 48.9% and 344.2%, in that order.
- Widening Profitability and Cash Flow: The strategy stresses not only revenue gain, but better efficiency. Lumentum's operating margin widened by over 102% in the last year, showing it is turning more revenue into profit. In a similar way, free cash flow increased almost 70%, giving the company the financial room to support operations and expansion from its own resources.
- Elevated Return on Equity (ROE): With an ROE of 29.7%, Lumentum is well above the screen's 10% limit. This shows the company is producing considerable profit from shareholder equity, a sign of a well-run growth business.
- Favorable Earnings Momentum: A critical filter in the screen looks for a speed-up in quarterly EPS gain. Lumentum's present quarterly EPS gain of 297.6% is much higher than the 31.3% gain from the similar quarter a year earlier, meeting this condition for positive momentum.
Fundamental Condition and Valuation Setting
While the screening conditions point out notable momentum, a wider view of Lumentum’s fundamental picture, as explained in its detailed analysis report, gives a more mixed view. ChartMill gives the stock a total fundamental score of 4 out of 10.
The report verifies points of strength matching the screen, especially in Growth, where it gets a 7. This comes from the strong past-year performance and even more positive analyst predictions for future earnings and sales gains. Profitability is graded as medium (score 4), supported by a high Return on Equity but affected by falling gross margins.
Clear points of attention come up in Financial Condition (score 3) and Valuation (score 2). The condition score is affected by low liquidity ratios, hinting at possible issues in handling near-term debts even with a good long-term debt position. On valuation, the stock sells at high earnings multiples, which might be acceptable to some investors given the outstanding expected gain rate, as shown by a positive PEG ratio.
A Stock for More Study
For investors using the "Little book" strategy, Lumentum Holdings Inc offers a notable example. It plainly satisfies the numerical limits set for finding companies with strong, speeding operational momentum, the core mechanism the strategy aims to use. The good earnings surprises, upward revisions, and strong gains in sales, EPS, and cash flow meet the important conditions for this method.
However, the strategy does not work alone. The wider fundamental analysis indicates that any investment idea must also consider the company's valuation, which assumes major future achievement, and its limited liquidity position. As Navellier states, screens are beginnings for more examination, not direct instructions to buy.
This study came from a screen created on Louis Navellier's growth conditions. You can review the present results of this screen and find which other companies are meeting these filters by seeing the strategy here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any securities. The study uses data thought to be dependable, but its correctness is not assured. Investors should do their own complete research and think about their personal money situation and risk comfort before making any investment choices.
