What is CANSLIM: Definition & Meaning Explained

Definition of CANSLIM

CANSLIM is an acronym for a seven-step strategy to pick growth stocks by combining fundamental and technical analysis. Here’s the full form of CANSLIM:

Current quarterly Earnings Per Share (EPS): compare this fundamental indicator with the same figure from the previous quarter. If the figure grows (by 20% or more as a rule of thumb), the company is fundamentally strong.

Annual earnings: Compare this fundamental indicator from the previous years. If there’s year-on-year growth, the company is fundamentally strong. If the year-on-year growth is by 20-25%, even better.

New product or service: strong companies continue to innovate. That’s what this letter is about - checking if the company is continuously launching new products, services, or holding events.

Supply: a fundamentally strong business should have a good supply and demand when it comes to its goods, services, and stock. Executive supply of shares may reduce the value of the company - that’s why it should always be scarce in supply.

Leader: the company should be a leader in its own right, either in or across industries.

Institutional holding: a valuable company will have higher institutional ownership, the percentage of which should always be tracked.

Market trend: an investor must check whether the company or stock is going or against the trend by comparing it to broader indices.

Anaume Pattern

An Anaume Pattern can be seen when a gap is filled after a change in the direction of a security or market’s price.

Anaume Patterns are gap-filling patterns that can signal the reversal of a bearish trend, which is nothing but a potential onset of a bullish trend, when used in conjunction with other patterns.

Anaume Patterns are also known as exception exhaustion patterns.

Interest Coverage Ratio

Interest Coverage Ratio (ICR) is used to determine the likelihood of a company’s ability to pay interest on existing outstanding debt. A low ICR typically indicates that a company is less likely to pay interest.

In fact, it indicates that the company may be heading towards bankruptcy. A higher ICR means that a company’s financial health is solid and more than likely to pay interest on existing outstanding debt.

Carrying Charge

Carrying charge or cost of carry is the money involved in the upkeep or general holding of an asset or financial instrument. Examples of carrying charges include maintenance costs, insurance, and others.

A carrying charge can increase the cost of owning an asset. At times, the cost of carry may exceed the potential returns, in which case an investor must evaluate whether the asset is worth keeping.

Bought Out Deal

A bought-out deal is a stock offering where an investment bank buys the entire issue of shares from a company. In turn, the investment bank will attempt to sell the shares to other investors. A deal of this kind has two benefits:

The company need not worry about subscription as the investment bank will purchase the entire offering
The investment bank can negotiate with the company and get the shares at a discount

That said, there are risks to a bought out deal like:

It is up to the investment bank to sell the shares to investors in order to recoup the principal or make a profit
The investment bank also runs the risk of receiving no interest in the shares from other investors
Guarantee purchase

If the issue size of the bought-out deal is large enough, the investment bank may team up with others to fulfil the purchase.