What is the 'CAN SLIM'

CAN SLIM, also referred to as "C-A-N-S-L-I-M" or "CANSLIM," is a system for selecting stocks, created by Investor's Business Daily founder William J. O'Neil. Each letter in the acronym stands for a key factor to look for when purchasing shares in a company.

BREAKING DOWN 'CAN SLIM'

CAN SLIM's seven-part criteria is as follows:

C - Current quarterly earnings per share has increased sharply from the same quarters' earnings reported in the prior year. (NB: Beware of items in financial statements that can cause earnings distortions. These can involve inflated current period earnings and/or deflating corresponding expenses, the creation of fictitious assets, and several other methods.)

A - Annual earnings increases over the last five years. (Again, it is possible for management to inflate these numbers, such as by recording revenue prematurely.)

N - New products, management, and other new events. In addition, the company's stock has reached new highs. Often, sudden events can cause short-term excitement, propelling a surge of optimism within the market and subsequent price appreciation.

S - A relatively scarce supply, coupled with strong demand for a stock creates excess demand. This is an environment, in which stock prices can soar. Companies acquiring (re-purchasing) their own stock reduces market supply and can indicate their expectation of increased demand, along with insider confidence in the firm. Also: be on the lookout for low debt-to-equity ratios.

L - Choose leading over laggard stocks within the same industry. Use the relative strength index (RSI) as a guide. The RSI ranges from zero to 100. A RSI indication above 30 suggests a buying opportunity (bullish), while above 70 signifies a chance to sell (bearish).

I - Pick stocks, which have institutional sponsorship by a few institutions with recent above average performance. For example, this could be a recently public company, still supported by a small handful of well known private equity firms. Be cautious of stocks that are over owned by institutions. Small stakes by a plethora of institutional investors (e.g. private equity firms, family offices, hedge funds, and large asset managers, among others).

M - Determining market direction by reviewing market averages daily. A market average measures the overall price level of a given market, as defined by a specified group of stocks, such as the Dow Jones Industrial Average (a price-weighted average of 30 blue chip stocks listed on the NYSE). Also known as the DJIA, the Dow Jones Industrial Average is also considered a measure of the overall health of the U.S. economy.

RELATED TERMS
  1. Dow Jones 65 Composite Average

    The Dow Jones 65 Composite Average is an index comprised of 65 ...
  2. Dow Jones Industrial Average (DJIA) ...

    The Dow Jones Industrial Average (DJIA) yield is the aggregate ...
  3. Market Index

    A market index is a weighted average of a section of the stock ...
  4. Average Up

    Average up is the process of buying additional shares in a stock ...
  5. Indicator

    Indicators are statistics used to measure current conditions ...
  6. Institutional Fund

    An institutional fund is a fund with assets invested by institutional ...
Related Articles
  1. Trading

    Overbought or Oversold? Use the Relative Strength Index to Find Out

    Learn how to use the Relative Strength Index (RSI) for analysis and to generate buy and sell signals.
  2. Investing

    Trader's Corner: Finding The Magic Mix Of Fundamentals And Technicals

    For a record-holding stock trader, CANSLIM is the formula that identifies this magic mix.
  3. Trading

    Buyers Beware: The Nasdaq Rally Is About to End

    A key indicator points to down times ahead for tech stocks on the Nasdaq.
  4. Small Business

    Five Investing Pitfalls To Avoid, According to Investor's Business Daily

    Common sense or common folly? Discover some approaches to circumventing typical stumbling blocks on the road to profitable investing.
  5. Trading

    Are Tech Stocks Primed for a Pullback?

    Overbought readings on these key tech assets suggest a significant pullback could be in the cards over the coming weeks/months.
  6. Investing

    Understanding and Playing the Dow Jones Industrial Average

    Learn strategies for investing in this price-weighted index and how to interpret its movements.
  7. Insights

    Why You Need To Know About S&P Dow Jones Indices

    This Article introduces the S&P Dow Jones Indices (SPDJI), available variant categories and index trading advantages
  8. Investing

    Why The Dow Matters

    Although the DJIA only includes 30 stocks, it can tell you a lot about the market as a whole.
RELATED FAQS
  1. What are the best technical indicators that complement the Relative Strength Index ...

    Learn some of the best additional technical indicators that can be used along with the relative strength index to anticipate ... Read Answer >>
  2. Why is the Dow Jones Industrial Average (DJIA) price weighted?

    Learn how the Dow Jones Industrial Average has told the story of the broad market through its simple, price-weighted calculation ... Read Answer >>
  3. What is the difference between the Dow and the Nasdaq?

    The Dow refers to the Dow Jones Industrial Average (DJIA) index, while the Nasdaq refers to the Nasdaq Composite Index. Read Answer >>
  4. How Can Institutional Holdings Be More Than 100%?

    No entity can own more than 100% of a company's outstanding shares, but it can be reported that way. Read Answer >>
Hot Definitions
  1. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  2. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  3. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  6. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
Trading Center