The “Little Book That Makes You Rich” strategy, distilled from Louis Navellier’s 2007 book, is built on eight fundamental rules designed to identify high-growth stocks with strong momentum, solid profitability, and sound financial health. The idea is to find companies that consistently beat earnings expectations, grow sales and profits, expand margins, generate cash, and deliver high returns on equity, all while showing positive revisions and accelerating earnings. In essence, it’s a disciplined framework for growth investing that relies on proven quantitative criteria rather than speculation. We recently ran a screen based on these rules, and one standout candidate is Vertiv Holdings Co-A (NYSE:VRT), a provider of critical digital infrastructure technology for data centers, communication networks, and industrial environments.
Meeting the Eight Rules
Vertiv scores remarkably well against the core criteria from Navellier’s playbook. Here’s how it lines up:
Positive Earnings Revisions
- Requirement: EPS estimates for the next quarter raised by at least 4% in the last 3 months.
- Vertiv’s Result: The next-quarter EPS estimate has been revised upward by 7.33% over the past three months, well above the 4% threshold. This suggests analysts see improving fundamentals, a key early signal in the strategy.
Positive Earnings Surprises
- Requirement: At least 3 positive EPS surprises in the last 4 reports, with an average beat above 10%.
- Vertiv’s Result: Vertiv beat estimates in all 4 of the last 4 quarters, with an average beat of 14.53%. Consistently exceeding expectations forces analysts to raise future estimates, fueling further price appreciation.
Increasing Sales Growth
- Requirement: At least 20% year-over-year (Y2Y) revenue growth and at least 20% quarter-over-quarter (Q2Q) revenue growth.
- Vertiv’s Result: Revenue grew 28.95% Y2Y (TTM) and 30.13% Q2Q (comparing the last quarter to the same quarter last year). This double-digit acceleration is a hallmark of expanding market demand.
Expanding Operating Margin
- Requirement: Operating margin must have grown by at least 2% over the past year.
- Vertiv’s Result: Operating margin expanded by 32.12% year-over-year, far exceeding the 2% minimum. Improving profitability while growing sales is a strong combination that signals operational efficiency.
Strong Cash Flow
- Requirement: Free cash flow (FCF) growth of at least 15% over the past year.
- Vertiv’s Result: FCF surged by 166.26% year-over-year. This remarkable cash generation provides the company with flexibility to invest in growth and reduce debt.
Earnings Growth
- Requirement: At least 15% Y2Y and 15% Q2Q EPS growth.
- Vertiv’s Result: EPS grew 54.25% Y2Y and 82.81% Q2Q. These figures show not just growth, but explosive profitability gains that align with the strategy’s focus on momentum.
Positive Earnings Momentum
- Requirement: Current Q2Q EPS growth must exceed the previous Q2Q EPS growth (measuring acceleration).
- Vertiv’s Result: The current Q2Q EPS growth of 82.81% is significantly higher than the prior period’s 48.84% (measured from four quarters ago). Acceleration here confirms the earnings trajectory is strengthening.
High Return on Equity (ROE)
- Requirement: Minimum ROE of 10%.
- Vertiv’s Result: ROE stands at 36.71%, well above the 10% minimum and among the highest in its industry. A high and improving ROE indicates the company efficiently generates profits from shareholder equity.
Fundamental Rating Summary
Vertiv earns an overall fundamental rating of 8 out of 10 from our analysis, placing it in strong territory. The breakdown reveals:
- Profitability (9/10): Excellent returns on assets, equity, and invested capital, with margins that consistently beat industry peers.
- Growth (8/10): Both past and expected future earnings and revenue growth are robust, with double-digit rates across the board.
- Health (8/10): A stellar Altman-Z score of 9.76 indicates minimal bankruptcy risk, and a debt-to-FCF ratio of just 1.28 shows rapid debt repayment capacity.
- Valuation (5/10): While the P/E ratio is high at 68.53, strong growth expectations (34.14% EPS growth expected) partially justify the premium. The PEG ratio remains neutral.
For a detailed breakdown of all these metrics, visit the full fundamental analysis report for VRT.
Valuation and Growth Considerations
Despite a high P/E of 68.53, Vertiv stands out because it is cheaper than about 70% of its industry peers on a P/E basis, and even more so on enterprise value-to-EBITDA and price-to-FCF multiples. The forward P/E of 40.14 is still elevated, but expected EPS growth of 34.14% annually provides a strong compensation. The company’s profitability rating is outstanding, which historically allows for a higher valuation multiple in growth strategies.
Screen Results and Next Steps
Vertiv’s performance across the eight rules demonstrates why it fits seamlessly into the Little Book framework, it’s a company that consistently beats expectations, grows rapidly on both the top and bottom lines, and maintains exceptional financial health. For investors looking to explore more opportunities that pass these rigorous criteria, we invite you to check the full list of results.
See more stocks that meet the Little Book criteria by visiting the Little Book Strategy Screener .
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own research and consider consulting a financial advisor before making investment decisions.