A method for stock selection often joins strict technical screening with attention to business momentum. One method, made known by trader Mark Minervini, uses a specific Trend Template to find stocks in strong, confirmed uptrends. This technical base is then combined with fundamental study to look for companies showing faster earnings and sales growth, the signs of possible high-growth investments. The aim is to locate leaders early in their large price advances, where good technical condition is backed by solid and getting better business foundations.
Lumentum Holdings Inc (NASDAQ:LITE) stands as a present candidate that seems to meet both the technical rules of the Trend Template and the aggressive growth character wanted by momentum investors.
Meeting the Minervini Trend Template
Minervini's Trend Template is made to sort for stocks showing definite, multi-timeframe strength, staying away from unclear or poor trends. Lumentum's chart shows a clear example of these rules at work.
- Moving Average Alignment: The stock's price is clearly above all main moving averages (50-day, 150-day, and 200-day). Importantly, these averages are arranged in the correct bullish sequence: the 50-day SMA ($420.76) is above the 150-day SMA ($258.72), which is itself above the climbing 200-day SMA ($215.10). This order confirms a united uptrend across short, intermediate, and long-term periods.
- Proximity to Highs: A central idea of the strategy is to concentrate on strength, not weakness. LITE is trading within 2% of its 52-week high of $688.07, showing it is a market leader, not a follower. Also, its present price is about 1,378% above its 52-week low, marking a strong recovery and continued uptrend.
- Superior Relative Strength: Maybe most revealing is the stock's ChartMill Relative Strength (CRS) score of 99.74. This means LITE has done better than nearly 99.75% of all stocks in the market over the last year. Minervini stresses that the largest winners often display high relative strength early, pointing to institutional buying and leadership.
This technical view is not only good; it is outstanding. The provided technical report gives LITE a top rating of 10, stating a "consistent performance in both the short and longer term time frames" and that it is "showing a nice and steady performance."
The High-Growth Fundamental Engine
A good chart is only part of the account. For a trend to last, it should be driven by fundamental gain. This is where the High Growth Momentum (HGM) rating becomes important, and Lumentum's basic measures show a business in a strong growth stage.
- Explosive Earnings Growth: The company is reporting exceptional bottom-line increase. Earnings per share (EPS) for the trailing twelve months grew by over 344% year-over-year. This speeding up is even more clear on a quarterly basis, with the latest quarter showing EPS growth of nearly 298% compared to the same period last year.
- Strong and Speeding Sales: Revenue growth gives the top-line confirmation. Lumentum's yearly revenue jumped by about 49%, while last quarter's sales rose by over 65% year-over-year. Analyst belief is also increasing, with next-year revenue guesses adjusted higher by nearly 25% in the last three months.
- Consistent Execution: The company has surpassed EPS guesses in each of the last four quarters, with an average beat of over 10%. This habit of exceeding forecasts is a main sign of operational momentum and management performance that growth investors value.
- Getting Better Profitability: After a time of squeezing, profitability is coming back strongly. The profit margin in the last reported quarter was 11.75%, a major recovery from 0.79% in the previous quarter, showing better operational use of its growing sales.
Technical Condition and Entry Points
According to the full technical study report for LITE, the stock's overall condition is rated very bullish. The long-term and short-term trends are both positive, and it is a top performer within its Communications Equipment industry. However, the report also gives a note of care for new entries. It states that while the technical rating is a top 10, the setup quality rating is lower, at a 3. This shows that after its large rise, over 98% in the past month alone, the stock may be stretched in the short term. The price action has been unstable, making a clear, low-risk entry point hard to identify at present levels. The study proposes it "may be a good idea to wait for a consolidation or pullback before considering an entry."
Conclusion
Lumentum Holdings Inc offers a strong example of a security that fits a strict growth-and-momentum investment plan. It meets the strict technical filters of the Minervini Trend Template, confirming it is in a leading market-leading uptrend. At the same time, its fundamental picture shows the explosive earnings growth, good sales speeding up, and getting better margins that high-growth investors look for. While its pure momentum currently suggests waiting for a better entry point, the mix of technical and fundamental strength makes it a main candidate for watchlists.
Interested in finding similar candidates? You can use the same "High Growth Momentum + Trend Template" screen that found LITE to find other stocks that meet these strict rules. See the screen here: High Growth Momentum + Trend Template Screener.
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Disclaimer: This article is for informational and educational purposes only. It is not intended as investment advice, nor does it constitute a recommendation to buy, sell, or hold any security. The analysis is based on data provided and should not be the sole basis for any investment decision. Always conduct your own due diligence and consider consulting with a qualified financial advisor before making any investment. Past performance is not indicative of future results.