For investors looking for a systematic, rule-driven way to find stocks with high growth, the method described in Louis Navellier's "The Little Book That Makes You Rich" provides a strong framework. The approach centers on eight essential elements meant to find companies showing better financial momentum and operational strength. These elements consist of positive earnings revisions and surprises, increasing sales and earnings growth, rising profitability, good cash flow generation, and a high return on equity. By using these traits as a filter, the approach tries to find businesses set up for continued strong performance.
A present example that meets this strict test is Micron Technology Inc (NASDAQ:MU), a top supplier of memory and storage products. The firm's latest financial reports display the rapid growth and operational gains the "Little Book" approach seeks to find.
Notable Growth and Momentum Measures
The heart of Navellier's approach is finding companies where growth is not only happening but also speeding up. Micron's latest reports show exactly this trend, fueled by good demand in fields such as artificial intelligence and data centers.
- Rapid Earnings Growth: The company's earnings per share (EPS) rose by 325.6% in the last year. More notable is the growth from one quarter to the next of 682.1%, which is much higher than the growth rate from the same quarter a year earlier (271.4%). This increase in speed is a central part of the approach, showing positive earnings momentum.
- Strong Sales Increase: Revenue growth is also notable, with a 48.9% rise year-over-year. The latest quarter had sales grow by 196.3% compared to the same quarter last year, pointing to strong recent demand.
- Positive Analyst Outlook: The approach values upward earnings revisions highly, as they frequently come before more positive surprises. Analysts have increased their EPS forecast for Micron's next quarter by 111.4% in the last three months. Also, the company has exceeded consensus EPS forecasts in all of the last four quarters, with an average surprise of 10.6%.
Improving Profitability and Financial Soundness
Beyond revenue growth, the "Little Book" method needs companies to turn sales into greater profits and cash flow, making sure growth is sound and can last.
- Sharply Rising Margins: A sign of a strong growth company is the capacity to better profitability as it gets larger. Micron's operating margin growth of 117.9% over the past year is very good, showing the company is using its sales growth to produce even quicker profit growth.
- Strong Cash Production: Good and increasing free cash flow gives a company financial options. Micron's free cash flow increased by 192.9% in the past year, easily meeting the approach's requirement and showing the business makes enough cash to support operations, invest, or give capital back to shareholders.
- Effective Use of Capital: The approach looks for companies that provide high returns on shareholder equity. Micron's return on equity (ROE) of 20.3% shows effective use of invested capital to create profits, going above the minimum goal and standing up well within its industry.
Fundamental Rating and Valuation Setting
ChartMill's fundamental analysis report gives Micron a good rating of 7 out of 10, describing a profile of very good profitability and solid growth, with some small points on financial soundness. The complete details of this evaluation, including full comparisons to industry competitors and the wider market, are in the full fundamental report for MU.
Important points from the report are:
- Profitability: Micron scores well (8/10) here, with industry-best margins and returns on assets and invested capital that are better than most competitors.
- Growth: The growth rating is solid (8/10), backed by the rapid past EPS and revenue increases noted above, together with positive future growth forecasts.
- Valuation: While the usual P/E ratio seems high, the valuation score (7/10) states that Micron trades at a notable lower price than its industry based on forward earnings. Its low PEG ratio, which includes high expected earnings growth, implies the stock could be fairly priced relative to its growth path.
Conclusion
For investors using the "Little Book That Makes You Rich" approach, Micron Technology offers a strong example. The company now shows a close match with Navellier's eight rules, displaying not just growth, but speeding growth in sales and earnings, along with fast-rising profitability and cash flow. Positive analyst revisions and a steady record of earnings beats further support the investment view. While the wider market's longer-term direction is down, approaches centered on fundamental momentum aim to find companies that can do well in any setting.
Micron is one of a number of companies now meeting this systematic test. To see the complete list of stocks that fit the "Little Book" rules, you can examine the pre-set screen here.
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Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any securities. Investing has risk, including the possible loss of the amount invested. Readers should do their own research and talk to a qualified financial advisor before making any investment choices.