For investors looking for a methodical way to find leading companies with high growth, the CAN SLIM method, created by William O'Neil, is a fundamental strategy. It joins detailed fundamental study with important technical signs to find stocks with solid earnings momentum, support from large investors, and leading traits, best bought when the general market is favorable. The system’s name explains its main parts: Current quarterly earnings speed, Annual earnings growth, New products or price highs, Supply and demand forces, Leadership position, Institutional backing, and the general Market trend.
A recent filter using these ideas has identified Companhia de Saneamento Basico do Estado de Sao Paulo SABESP (NYSE:SBS), a Brazilian water and waste utility, as a possible option for more review by investors focused on growth.
Matching the CAN SLIM Standards
The filtering method tests stocks against measurable rules taken from O’Neil’s research. SBS displays positive results across many of these important measures:
- Current Quarterly Earnings & Sales (The "C" in CAN SLIM): The system requires large or speeding quarterly growth. SBS displays solid momentum here, with earnings per share growth of 87.2% and revenue growth of 43.9% versus the same quarter last year. These numbers are much higher than the basic filter limits of 20% and 25%, showing a positive recent operational result.
- Annual Earnings Gains (The "A"): CAN SLIM searches for a record of large growth. SBS states a 3-year EPS compound annual growth rate (CAGR) of 39.4%, well above the 25% lowest limit used in the filter. This implies the company’s profit increase is not a single-quarter event but part of a continuing pattern.
- Leader or Laggard (The "L"): A central idea of the strategy is to buy market leaders, not weaker performers. This is judged by relative strength (RS), which contrasts a stock’s price action with the wider market. SBS has a positive RS rating of 90.44, meaning it has done better than over 90% of all stocks. This leading trait is important, as it shows the market is acknowledging and valuing the company’s fundamental improvement.
- Institutional Sponsorship (The "I"): The strategy prefers stocks with some institutional ownership, but not an amount so high that all possible buying is done. SBS’s institutional ownership is about 60.4%, which is under the filter’s 85% maximum. This amount shows interest from professional investors while allowing for more ownership, which could give future buying support.
- Financial Condition & Supply (The "S"): The filter also includes tests for financial soundness. SBS keeps a debt-to-equity ratio of 0.83, which is below the filter’s highest limit of 2 and shows a manageable level of debt. Also, its Return on Equity (ROE) of 20.0% is very good, greatly exceeding the 10% minimum and placing at the best in its field, a signal of efficient use of shareholder money.
Fundamental and Technical Overview
A look at SBS’s separate reports gives a wider view beyond the filter’s rules.
The company’s fundamental analysis shows a varied but mostly sound profile. It gets a rating of 6 out of 10, supported by a "very good" profitability score of 8. Its field-leading ROE and solid profit margins are clear positives. The price assessment seems fair, with a P/E ratio that is low compared to both its industry group and the wider S&P 500. However, the report mentions some small issues about financial condition and states that while future growth is likely to stay positive, it may not equal the very high speed of recent times.
From a technical view, SBS’s technical analysis is particularly positive, with a rating of 9 out of 10. The long-term direction is up, and the stock is trading in the higher part of its 52-week range, matching its high relative strength. The report also points out a good price formation, with prices settling near recent highs and a clear support area below the current price, which can help in considering possible entry and exit levels.
An Option for More Study
While the CAN SLIM filter is made to find stocks with particular growth and momentum features, it is a first step for more detailed investigation. SBS offers a strong argument, meeting several important conditions: very high recent quarterly growth, a positive multi-year earnings pattern, better market-leading relative strength, and sound institutional interest. Its solid profitability and good price assessment add to the investment story.
It is important to recall the final "M" in CAN SLIM: Market Trend. The strategy suggests care if the general market direction is down. Investors should balance SBS’s own positives against the present market setting before any choices.
This review was created from a set CANSLIM filtering setup. You can review the present filter and view other possible options that meet these growth and leadership rules here.
Disclaimer: This article is for information only and is not financial advice, a support, or a suggestion to buy, sell, or keep any security. The CAN SLIM method includes risk, and past results do not guarantee future outcomes. Investors must do their own complete research, think about their personal financial position and risk comfort, and talk with a qualified financial advisor before any investment choices.