S = Supply and Demand

The S in CANSLIM stands for supply and demand, which refers to the laws that govern all market activities.

The analysis of supply and demand in the CANSLIM method maintains that, all other things being equal, it is easier for a smaller firm, with a smaller number of shares outstanding, to show outstanding gains. The reasoning behind this is that a large-cap company requires much more demand than a smaller cap company to demonstrate the same gains.

O’Neil explores this further and explains how the lack of liquidity of large institutional investors restricts them to buying only large-cap, blue-chip companies, leaving these large investors at a serious disadvantage that small individual investors can capitalize on.

Because of supply and demand, the large transactions that institutional investors make can inadvertently affect share price, especially if the stock's market capitalization is smaller. Because individual investors invest a relatively small amount, they can get in or out of a smaller company without pushing share price in an unfavorable direction.

In his study, O’Neil found that 95% of the companies displaying the largest gains in share price had fewer than 25 million shares outstanding when the gains were realized.