Investors aiming for notable capital appreciation frequently use a blended method, joining the prospective discipline of fundamental analysis with the timing signals of technical analysis. One technique is to filter for stocks showing solid underlying business growth, shown by accelerating revenues and earnings, while also presenting favorable price action that indicates a possible breakout. This method tries to find companies that are not only fundamentally sound and growing but are also receiving positive momentum in the market, possibly providing a favorable entry point. LPL Financial Holdings Inc (NASDAQ:LPLA) recently appeared from such a filter, made to locate solid growth stocks with encouraging technical formations.
A Base of Solid Fundamental Growth
The central idea of growth investing is finding companies that are growing at a pace much quicker than their competitors. According to its fundamental analysis report, LPLA shows this trait clearly. The company receives a solid Growth Rating of 8 out of 10, supported by notable historical performance and firm future expectations.
- Historical Momentum: Over the last year, LPLA's revenue increased by 37.18%, while earnings per share rose by 21.76%. The multi-year averages are similarly notable, with revenue growing at 23.68% and EPS at 25.51% each year.
- Future Expectations: Analysts forecast continued growth, with revenue anticipated to rise by 13.58% and EPS by 8.71% on average in the next years. While this shows a slowdown from the high past rates, it remains a firm outlook that merits investor notice.
- Profitability and Health: Backing this growth story are acceptable scores in Profitability (6/10) and Financial Health (5/10). The company displays firm returns on equity and invested capital, doing better than most of its capital markets industry peers. Its liquidity position is also firm, with acceptable current and quick ratios.
This fundamental picture is important for the strategy because lasting growth must be founded in a workable, profitable business model. A company cannot depend on technical momentum by itself; it requires the engine of earnings and sales acceleration to push long-term price appreciation, a main rule of growth investing.
A Technical View Pointing to Gathering
While fundamentals give the "why," technical analysis can provide insight into the "when." LPLA's technical analysis report shows a stock that is settling after a firm advance, forming a base for a possible next move higher. The stock gets a Setup Rating of 8 out of 10, signaling a favorable pattern for traders.
- Favorable Consolidation: The stock is now trading in the higher part of its 52-week range and has been settling within a set range over the last month. This time of sideways movement after a rise can often ease overbought conditions and allow for fresh gathering.
- Important Support and Resistance: The technical analysis notes a clear support zone below the present price and a set resistance zone just above it. This makes a measurable risk/reward structure. A clear move above the resistance area could indicate the beginning of a new upward phase.
- Positive Signals: Notably, the report points out a recent "Pocket Pivot" signal, a formation that happens when the stock moves higher on volume larger than any down volume day in the previous two weeks. This is often seen by technicians as a sign of institutional gathering without high price movement, matching well with the search for firm stocks in a quiet building phase.
The existence of a good technical formation is key for this blended strategy. It assists in filtering for stocks where the firm fundamental story is being acknowledged by the market, possibly leading to a momentum-driven price breakout. It shifts the analysis from finding a good company to timing a chance in a good stock.
Valuation and Market Setting
LPLA offers an interesting valuation picture. With a Price/Earnings ratio of 19.17, it trades at a lower level than the wider S&P 500 average and is nearly equal with its industry peers. More significantly, its Price/Forward Earnings ratio of 15.96 and a low PEG ratio, which considers earnings growth, indicate the stock is not overvalued relative to its growth path. This blend of firm growth at a sensible price is a desired trait for growth investors who are aware of paying too much for future potential.
The wider market setting is also applicable. While LPLA's long-term trend stays positive, its short-term trend is neutral as it settles. This happens while the S&P 500 itself shows a positive short-term trend, suggesting LPLA may be building force to match the wider market's momentum.
Summary
LPL Financial Holdings Inc presents an example in the blended fundamental and technical filtering method. The company displays the signs of a firm growth stock, with outstanding historical revenue and earnings growth backed by acceptable profitability measures. At the same time, its chart shows a favorable technical formation, described by consolidation near highs, clear support and resistance levels, and indications of quiet gathering. This combination indicates a company whose fundamental force may be close to turning into renewed technical momentum.
Interested in locating other stocks that join firm growth with encouraging technical patterns? You can examine the predefined "Strong Growth Stock Technical Setups" filter and adjust your own search using our stock screener here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented is based on data provided and should not be the sole basis for any investment decision. Investing involves risk, including the potential loss of principal. Always conduct your own due diligence and consider consulting with a qualified financial advisor before making any investment decisions.
