In the search for good investment chances, a method that joins solid fundamental momentum with positive technical patterns can be especially effective. This method looks for companies showing very strong earnings and sales growth—important parts of high-growth momentum investing—while also showing firm price trends and helpful chart patterns that indicate a possible breakout. By filtering for stocks with a high ChartMill High Growth Momentum Rating (HGM), a firm Technical Rating (TA), and a high Setup Quality Rating, investors try to find securities where fundamental speed and technical preparation meet.
Lumentum Holdings Inc (NASDAQ:LITE) appears as a strong candidate from this filter, having an HGM Rating of 8, a TA Rating of 9, and a Setup Rating of 7. This mix points to a company experiencing solid fundamental growth while trading in a technically sound condition and making a possible entry pattern.
Fundamental Growth Momentum
The center of the high-growth momentum method is finding companies with speeding business results, and Lumentum’s recent financial numbers give a clear example. The company is showing outstanding earnings strength and firm sales growth, which are important for keeping investor attention and price gains.
- Very Strong Earnings Growth: The company’s trailing twelve-month (TTM) EPS has increased by a large 344% year-over-year. Even more notable is the sequential quarterly speed, with recent year-over-year EPS growth rates hitting 298%, 511%, and a notable 1,367% two quarters before. This sequence of large acceleration is a main reason for its high HGM Rating.
- Firm Sales Growth: Revenue growth is matching this, with TTM sales up 49%. Recent quarterly sales growth has been steadily firm, at 65%, 58%, and 56% over the last three reports, showing wide demand.
- Positive Analyst View and Execution: The company has exceeded EPS estimates in each of the last four quarters, with an average surprise of 10.4%. Also, analysts have raised their estimates over the past three months, increasing the average next-year EPS estimate by 27.5% and revenue estimates by 10.6%. This mix of beating expectations and getting estimate raises is a sign of positive earnings momentum.
- Widening Profit Margin: A main part of the HGM Rating is better profitability. Lumentum’s profit margin in the newest quarter was 11.8%, a clear widening from 0.8% in the quarter before, showing operational efficiency and better earnings quality as sales increase.
Technical Strength and Setup Quality
While fundamental growth gives the energy, the technical view decides the timing. Lumentum’s technical profile, explained in its ChartMill Technical Report, shows a stock in a solid uptrend that is now pausing, giving a possible setup.
- Outstanding Technical Condition: A TA Rating of 9 puts Lumentum in the top group of stocks from a technical view. The report states the long-term trend is positive, and the stock has been a strong performer, doing better than 99% of all stocks in the market over the past year. It is trading near the high point of its 52-week range, confirming its leading position.
- Helpful Pause: After a large rise, the stock has entered a pause phase over the past month, trading between about $548 and $809. This stop has let the price steady and movement decrease, forming the reason for the Setup Rating of 7. The report states that Lumentum "presents a decent setup pattern" with prices pausing and very little direct resistance above.
- Clear Risk Points: The technical analysis finds a definite support area around $558.43, made by several trend lines. This gives a sensible level for setting risk, as a drop below this zone would likely cancel the current setup. The meeting of firm technical condition with a time of rest creates the situation good for a momentum breakout.
Meeting of Method
This analysis shows the combined effect of the filter rules. The high HGM Rating confirms the fundamental engine is working well, with earnings and sales speeding up and analysts becoming more positive. This is exactly the type of growth that can push a stock upward. The high TA Rating makes sure the stock is already in a confirmed uptrend and showing relative strength, a required condition for momentum investors. Finally, the high Setup Rating points out the solid trend is taking a pause in a stable way, possibly giving a lower-risk entry point compared to buying during a steep rise, before its next possible move upward.
For investors using this joined growth-and-technical method, Lumentum shows a case where the fundamental story and the chart pattern are telling a similar story of strength and possible continuation.
Interested in finding more stocks that match this high-growth momentum breakout profile? You can run the filter yourself using the High Growth Momentum Breakout Setups Screen on ChartMill.
Disclaimer: This article is for information only and does not make investment advice, a suggestion, or an offer to buy or sell any security. The analysis uses given data and shows the author's view. Investing has risk, including the possible loss of principal. Always do your own research and think about talking with a qualified financial advisor before making any investment choices. Past results do not show future results.