For investors looking to join strong growth potential with defined technical entry points, the method made popular by Mark Minervini offers a notable framework. This process, frequently called the SEPA (Specific Entry Point Analysis) strategy, depends on finding stocks that show both solid fundamental momentum and clean technical condition. The aim is to locate market leaders early in a large price increase by using fixed filters. On the technical side, Minervini's Trend Template confirms a stock is in a clear, strong uptrend. Fundamentally, the attention is on companies showing quickening earnings and sales growth, high profit margins, and favorable analyst revisions, the signs of real high-growth momentum.
REDDIT INC-CL A (NYSE:RDDT) recently appeared through a scan that uses this two-part view, joining the Minervini Trend Template with a High Growth Momentum (HGM) score. Let's look at why this social media platform seems to fit the standards wanted by growth-oriented investors using this process.
Reviewing the Technical Base: The Trend Template
Minervini's Trend Template is made to filter out all but the soundest technical patterns, confirming a stock is in a distinct Stage 2 advance. It serves as a quality check, requiring exact arrangements in moving averages and price movement that point to institutional buying and a likely uptrend. A check of Reddit's chart indicates it satisfies these strict technical conditions:
- Moving Average Arrangement: The stock's price is trading above all main moving averages (50-day, 150-day, and 200-day). Importantly, these averages are ordered positively, with the shorter-term averages above the longer-term ones (50-day > 150-day > 200-day), and all are moving upward. This formation confirms a continued, multi-timeframe uptrend.
- Nearness to Highs: A central idea of the strategy is to concentrate on strength, not low price. Reddit's present price is within 25% of its 52-week high, showing it is behaving like a market leader instead of a weak performer. At the same time, the price stays more than 30% above its 52-week low, showing notable recovery and forward motion from its lows.
- Better Relative Strength: The stock has a ChartMill Relative Strength (CRS) score of 86.16, meaning it is doing better than about 86% of the market. For Minervini, high relative strength is essential; it finds the stocks that are wanted and guiding the market upward, not just following a general wave.
This technical view meets the Trend Template's purpose: to locate stocks where the direction of least opposition is clearly upward, thus raising the chance of a good momentum-based trade.
Examining the Growth Driver: Fundamental Momentum
While a sound chart is necessary, the Minervini strategy looks for the fundamental "force" that can drive a stock for months or years. The High Growth Momentum score centers on the strong earnings and sales growth that usually comes before and goes with major price gains. Reddit's recent financial results show several notable growth traits:
- Strong Earnings Growth: The company has reported very high year-over-year earnings per share (EPS) growth in recent quarters, with the latest quarter up 400% and the quarter before up 850%. This sequence of increasing speed is a potent sign. Also, analysts are growing more positive, lifting their earnings forecasts for the next year by over 23% in the last three months.
- Sound and Quickening Sales: Revenue growth stays very high, with the last quarter showing almost 68% year-over-year growth. This comes after several earlier quarters of growth above 60%, showing a steady, fast increase of the top line.
- Profitability Growth: Maybe most significantly, Reddit is turning this fast revenue growth into much better profitability. The profit margin has grown in order over the past two reported quarters, rising from 6.67% to 17.87% and then to 27.81%. This margin growth points to operating efficiency and pricing ability, main features of a developing but still fast-growing business.
- Steady Performance: The company has surpassed both earnings and revenue forecasts in each of the last four quarters, with an average EPS beat of over 180%. This steady capacity to go beyond expectations builds trust with investors and can be a reason for more institutional purchasing.
These fundamental numbers show the type of potent basic business momentum the Minervini strategy aims to pair with a sound technical pattern. The pairing indicates the price strength is not only speculative but may be backed by real, quickening financial results.
Technical Condition Summary
A check of the detailed ChartMill Technical Analysis Report for RDDT gives a wider view of its technical position. The report gives the stock a high technical score of 9 out of 10, noting its steady results across both short and long-term periods. The long-term and short-term trends are both scored as good. The analysis states the stock is trading in the higher part of its yearly range and has lately been moving within a set price area, which can offer a possible entry chance as activity lessens. Main support levels are found in the $217-$218 and $200-$201 areas, giving clear places for risk control.
Locating Comparable Chances
Reddit acts as a current example of a stock that matches the ideas of high-growth momentum investing inside a set technical structure. For investors curious to use this method to find other possible choices, the scanning process that found RDDT can be a beginning point.
You can view the present results of the "High Growth Momentum + Trend Template" scan yourself here: High Growth Momentum + Trend Template Screen.
Disclaimer: This article is for informational and educational purposes only. It is not a recommendation to buy or sell any security. The analysis is based on data provided and certain screening criteria; it does not constitute investment advice. All investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions. Please read our full disclaimer here.
