For investors looking for a structured way to find stocks with high growth, the method described in Louis Navellier's "The Little Book That Makes You Rich" presents a strong framework. This plan is based on eight core rules meant to find companies showing better financial momentum, like positive earnings revisions and surprises, faster sales and earnings growth, improving profitability, good cash flow, and a high return on equity. By searching for these exact traits, investors try to locate stocks that could see major price gains. One stock that recently appeared from this search is Lumentum Holdings Inc (NASDAQ:LITE), a maker of optical and photonic products.
Fit with the "Little Book" Rules
A detailed look at Lumentum's recent financial results shows why it meets the initial search based on Navellier's rules. The company is displaying the type of fast growth and positive momentum the plan looks for.
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Positive Earnings Revisions & Surprises: Analysts have greatly increased their forecasts, with the average EPS estimate for the next quarter moved up by 45.8% in the past three months. This is a clear sign that experts see better fundamentals. Also, Lumentum has a flawless history of beating forecasts, surpassing EPS estimates in all of the last four quarters by an average of 10.4%. Steady positive surprises often make analysts raise future estimates, starting a pattern of increasing expectations.
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Strong Sales and Earnings Growth: The company is showing forceful expansion in revenue and profit, a central idea of growth investing.
- Revenue increased 48.9% year-over-year and jumped 65.5% quarter-over-quarter.
- Even more notable is the profit growth, with EPS rising 344.2% over the last year and 297.6% in the latest quarter compared to the year-ago period.
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Improving Profitability and Good Cash Flow: It is not only about higher sales, it is about raising profits more effectively. Lumentum's operating margin has improved by over 102% in the last year, showing better cost control and pricing ability as sales rise. Also, the company's free cash flow increased by 69.7%, giving financial room to run operations, put money into growth, or give money back to shareholders without needing too much outside funding.
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Positive Earnings Momentum and High ROE: The plan seeks acceleration, not just growth. Lumentum's current quarterly EPS growth of 297.6% is much faster than the 31.3% growth from the similar quarter a year ago, showing clear positive momentum. Lastly, the company produces a very good return on equity (ROE) of 29.7%, meaning it is very good at creating profits from money shareholders have invested.
Fundamental Score and Price Context
While the "Little Book" search points out strong momentum, a wider fundamental review gives needed background. Based on ChartMill's full fundamental report, Lumentum gets a 4 out of 10 total score. This average score shows a situation of outstanding growth together with notable difficulties.
The company's Growth score is good (7/10), supported by the fast past and predicted future rises in sales and earnings. Analysts forecast yearly EPS growth of 96.1% and revenue growth of 53.9% moving forward. However, this exists with a poor Health score (3/10), mainly because of liquidity worries shown by a low current ratio. The Valuation score is low (2/10), with a high P/E ratio showing the market's high price for its growth potential, although its low PEG ratio indicates this high price could be reasonable given the expected growth rate.
Points for Investors
Lumentum shows a standard case for investors focused on growth. It exactly matches the idea of the "Little Book" search by showing almost all the wanted momentum traits at the same time: climbing revenues, large earnings increases, margin improvement, and positive analyst actions. For investors using this method, it is a top choice for more detailed research.
The main points are the balances. The excellent growth numbers are strong, but investors must balance them against the company's poorer financial health signs and its high price, particularly in a market where the wider S&P 500 is in a down trend. The investment idea depends on the company's capacity to continue its fast growth path to finally support its present price and make its balance sheet stronger.
Interested in finding other companies that fit this growth-focused strategy? You can explore the full screen and its current results here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The "Little Book That Makes You Rich" search method is one of many investment plans, and past results of a search rule do not predict future outcomes. Investors should do their own complete research and think about their personal money situation and risk comfort before making any investment choices.