C = Current Earnings

O’Neil emphasizes the importance of choosing stocks whose earnings per share (EPS) in the most recent quarter have grown on a yearly basis. For example, a company’s EPS figures reported in this year’s April-June quarter should have grown relative to the EPS figures for that same three-month period one year ago.

How Much Growth?

The percentage of growth a company’s EPS should show is somewhat debatable, but the CANSLIM system suggests no less than 18-20%. O’Neil found that in the period from 1953 to 1993, three-quarters of the 500 top-performing equity securities in the U.S. showed quarterly earnings gains of at least 70% prior to a major price increase.

The other one quarter of these securities showed price increases in two quarters after the earnings increases. This suggests that basically all of the high performance stocks showed outstanding quarter-on-quarter growth. Although 18-20% growth is a rule of thumb, the truly spectacular earners usually demonstrate growth of 50% or more.

Earnings Must Be Examined Carefully

The system strongly asserts that investors should know how to recognize low-quality earnings figures - that is, figures that are not accurate representations of company performance. Because companies may attempt to manipulate earnings, the CANSLIM system maintains that investors must dig deep and look past the superficial numbers companies often put forth as earnings figures.

O’Neil says that, once you confirm that a company's earnings are of fairly good quality, it's a good idea to check others in the same industry. Solid earnings growth in the industry confirms the industry is thriving and the company is ready to break out.