Investing Coaching / Edge-ucation

CANSLIM Investing Strategy Explained

  • Austin Still

    Austin holds a Bachelor of Commerce from the University of Saskatchewan and brings over 10 years of investing experience. With a belief the most important decision investors make when buying stocks is the price paid, Austin aims to blend growth with value by finding companies with accelerating growth combined with a discounted valuation. More specifically, Austin’s expertise lies in the technology sector, identifying businesses showing strong growth, a lasting competitive advantage, and sound fundamentals, paired with a valuation that supports further stock price appreciation.

    View all posts
CANSLIM, MarketSmith
Image credit: MarketSmith

Originally created by William J O’Neil, the CAN SLIM investing system is designed to help investors find quality investment opportunities by incorporating both fundamental and technical analysis.

More specifically, CANSLIM is an acronym, with each letter representing a key attribute investors should look for when analyzing stocks.

While the CANSLIM strategy does have a favorable track record of helping investors identify quality growth stocks, before utilizing this strategy yourself, let’s take a closer look at what qualifies specific companies as CANSLIM-worthy investments.

History of the CANSLIM Method

The founder of the CANSLIM strategy (and of the extremely popular investment website investor’s business daily), William J. O’Neil, started his career as a stockbroker back in the 1950s.

Upon entering the financial world, Mr. O’Neil became determined to find what characteristics define the companies that outperform the broader market. He wanted to develop a system that could help him (and his clients) identify these high-performing investments before the rest of Wall Street could.

After years of research, O’Neil found seven recurring traits the best-performing companies on the stock market had in common.

From discovering these seven traits, the CANSLIM investing strategy was born, which investors have been using ever since to identify high-growth stocks that have a high likelihood of outperforming the broader market.

The Seven CANSLIM Attributes

In the US alone, there are over 4,000 publicly traded companies.

With so many potential investment options to choose from, the CANSLIM method offers both the experienced investor and beginner stock picker a framework on to base their decisions.

More specifically, the seven critical traits that investors need to focus on when searching for CANSLIM-worthy stocks are:

C – Current Quarterly Earnings

The CANSLIM method focuses on high-quality growth stocks, so it should come as no surprise that the first attribute of CANSLIM investing, is looking for companies whose current quarterly earnings per share (EPS) is increasing at least 25% year-over-year.

O’Neil would look for stocks that had well above 25% EPS, with some companies reporting 50% or 100% EPS on a consistent basis. When researching the defining characteristics of the best-performing companies in the world, O’Neil found that companies who were reporting accelerating earnings per share of at least 25% meant the company was not only growing their top-line revenue but are also becoming more profitable as they scale.

A – Annual Earnings Growth

Annual earnings growth is a common trait many investors look for when trying to identify potential investment opportunities. However, where the CANSLIM methodology differs, is a company should be reporting an increase of at least 25% annual earnings growth for the last 3 years in a row.

Many firms can cut costs or find short-term solutions to accomplish impressive annual earnings growth for one quarter or year, but a company that’s reporting consistent long-term increases in annual earnings growth shows investors they have a sustainable business model that will provide significant value to shareholders long term.

N – New Product, Services, or Management

The most successful companies in the world are those that can consistently innovate and understand what customers want. The “N” in CANSLIM stands for a company releasing a new product or service or bringing on new management that will help the firm penetrate new markets and drive further revenue growth.

Innovation is key, especially in today’s world, and firms that can prove time and again they have the flexibility, knowledge, and technology to continuously innovate and expand their market share tend to make excellent investment opportunities.

The “CAN” in CANSLIM defines a company as having explosive earnings per share growth combined with an equally impressive annual earnings growth rate and a hot new product or service to sell to customers.

Having the first three attributes leads to institutional sponsorship from hedge funds and mutual funds to buy up shares quickly (increasing the demand for a company’s shares).

S – Supply and Demand

As complicated as the stock market is, finding investing success usually comes down to simple supply and demand.

O’Neil found he could increase the chances of selecting a stock whose share price would rise by looking for companies that had a high trading volume and low amount of shares outstanding.

Stocks whose trading volume is above average typically mean aggressive growth mutual funds and other institutional investors are buying large sums of shares. This increase in institutional ownership puts strong demand on the company’s outstanding shares, driving up the price quickly.

L – Leader or Laggard

The “L” in CANSLIM stands for leader or laggard, meaning for a company to be qualified as a CANSLIM stock, it needs to be the market leader in a firm’s respective industry or geographical area.

O’Neil was a firm believer that investors shouldn’t settle for ok or good companies, rather, they should be picking the best of the best – or in other words, only focusing on the leaders and ignoring the laggards.

On his website, Investor’s Business Daily, O’Neil developed a formula called the relative price strength, which gives a stock a score out of 100 and ranks it against its industry peers. In order to be considered investable, the CANSLIM method requires a relative price strength score of at least 80.

I – Institutional Sponsorship

Institutional sponsorship simply means large institutional investors are buying up a company’s stock. Whether it’s pension funds, banks, or hedge funds, these institutions have hundreds of analysts performing in-depth research on thousands of different companies.

Seeing these billion-dollar investors buying a specific stock can be an excellent confirmation signal that this investment is likely to pay off.

Further, if, quarter after quarter, more and more institutional investors are purchasing shares, this should be considered an even more bullish sign that this specific company is a great investment opportunity.

M – Market Direction

Last but definitely not least, market direction is perhaps the most important attribute of the CANSLIM method.

Even if you found a stock that has the six other attributes, if the market direction is downwards, the likelihood of a company share price going up is slim.

More specifically, 75% of publicly traded stocks move in the direction of the general market direction.

As such, market direction shifts can be extremely powerful events for investors to capitalize on, and the CANSLIM investing method preaches to only buy a stock when a bullish market uptrend is confirmed.

Advantages of the CANSLIM Investing System

The advantages of the CANSLIM system are:

  • Eliminates emotions
  • Provides a simple framework to follow
  • Great way to find promising growth and small cap stocks

The CANSLIM strategy provides a clear and simple framework for investors to follow when performing research.

By following the CANSLIM strategy, investors can eliminate impulsive and emotional decision-making – helping give investors a clearer head and greater confidence when investing.

Additionally, the CANSLIM criteria can be an excellent way for stock pickers, especially individuals interested in growth stocks, to find compelling investment opportunities, even if a stock doesn’t meet the entire CANSLIM criteria.

In summary, the greatest advantage of the CANSLIM method is that it provides a battle-tested framework for investors to follow when performing their own research.

Especially for beginner investors who can quickly become overwhelmed by the amount of information and opinions regarding which stocks to buy, the CANSLIM method helps investors cut through the noise and provides a more systematic approach to choosing high-quality investments.

Limitations of the CANSLIM System

Limitations of the CANSLIM system are:

  • It’s not a guaranteed way to make money
  • Not every CANSLIM-eligible stock will perform well
  • Not ideal for passive investors

While the CANSLIM system can be great for some, there are also some limitations every investor should be made aware of.

Specifically, the CANSLIM method is not a magical formula for finding winning stocks, and not every company that fits the CANSLIM criteria will guarantee investing success.

Secondly, CANSLIM requires a much more active role from the investors who implement the strategy, with some labeling the methodology as more of a swing trading system than a long-term investment strategy. Those who aren’t willing to perform consistent research on the stocks they buy will most likely struggle to find success with the CANSLIM system.

Lastly, CANSLIM requires investors to have at least a basic level of understanding of both technical and fundamental analysis. Beginner investors who wish to use the CANSLIM system should make sure to first understand the basics of fundamental analysis and technical trading patterns.

Who Should Use the CANSLIM Strategy?

The CANSLIM system requires a healthy amount of research and investment experience. Investors who aren’t willing to put in the time and effort needed to perform technical and fundamental analysis properly shouldn’t use the CANSLIM method.

Additionally, CANSLIM is a momentum-based investment strategy, and investors who focus solely on the long term (5 years or more) may struggle with the attributes related to analyzing technical indicators or only buying when the market direction is upwards.

In short, the CANSLIM method is geared towards investors who want to take a more active role in their investment decisions and are willing to put in sufficient research to identify stocks that meet the CANSLIM criteria.

Conclusion – Should You Use the CAN SLIM System

The CANSLIM method has become extremely popular since it was first released by William J. O’Neil back in the late 1950s, and it undoubtedly has led to many achieving investing success.

However, the method requires investors to take a more active role in their investment decisions, which can be overwhelming or simply too time-consuming for many. The system is not a guaranteed way to make money, and picking individual stocks does come with an increased amount of risk when compared to other investment styles, such as passive index investing.

When answering the question, should you use the CANSLIM method? In truth, the CANSLIM system shouldn’t be followed blindly but instead used in conjunction with other investing strategies and styles.

Combining CANSLIM stocks with other investing forms will lead to reduced volatility, as well as a more balanced approach to managing one’s finances. Further, using the CANSLIM approach with large cap investing, as well as strategic options trading and long-term buy and hold positions, can help provide significant returns for investors while simultaneously reducing one’s risk.

If the CANSLIM method sounds like something that may align with your personal investment style and financial goals, then don’t hesitate to give it a try. Just be sure to manage your risk appropriately and understand the limitations of the system.

Doing this will significantly help you achieve outsized investment returns while simultaneously limiting your risk.





We are not brokers, investment, or financial advisers; you should not rely on the information herein as investment advice. If you are seeking personalized investment advice, please contact a qualified and registered broker, investment adviser, or financial adviser. You should not make any investment decisions based on our communications. Our stock profiles are intended to highlight certain companies for YOUR further investigation; they are NOT recommendations. The securities issued by the companies we profile should be considered high risk and, if you do invest, you may lose your entire investment. Please do your own research before investing, including reading the companies’ public filings, press releases, and risk disclosures. The company provided information in this profile, extracted from public filings, company websites, and other publicly available sources. We believe the sources and information are accurate and reliable but we cannot guarantee it. The commentary and opinions in this article are our own, so please do your own research.
Copyright © 2023 Edge Investments, All rights reserved.

  • Austin Still

    Austin holds a Bachelor of Commerce from the University of Saskatchewan and brings over 10 years of investing experience. With a belief the most important decision investors make when buying stocks is the price paid, Austin aims to blend growth with value by finding companies with accelerating growth combined with a discounted valuation. More specifically, Austin’s expertise lies in the technology sector, identifying businesses showing strong growth, a lasting competitive advantage, and sound fundamentals, paired with a valuation that supports further stock price appreciation.

    View all posts

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