How do we analyze a company?

We enjoy the process far more than the proceeds. - Warren Buffett

COMPANY ANALYSIS

Lillaney

4/22/20231 min read

My favourite method to analyse a stock is the CANSLIM method which was made famous by William O’Neill in his book ‘How to Make Money in Stocks’. Given below are the details:

  1. C - stands for current quarter EPS. When compared to the corresponding quarter of last year the best stocks show a more than 15-20% growth. 

  2. A - stands for annual EPS. If we compare the EPS of the last 3-5 years the EPS should have ideally doubled which implies a growth of 15-20%.

  3. N - There should be something new in the stock. Usually it’s a new industry which is emerging, new highs being hit, new management, etc.

  4. S - Shares outstanding should be as low as possible.

  5. L - The stock should be a market leader.

  6. I - The stock should have some institutional interest.

  7. M - The overall market should be positive as ¾ stocks follow the general market.


I usually look at stocks hitting new 52 week highs to drill down further. Then I check the fundamentals. If the fundamentals are good and the stock is trending upwards with good volumes I start buying.

I used to sell at a 10% fall from the 52 week high but am now considering holding on for longer by following the interest rate cycle and seeing if it gives better returns.


The idea is basically to buy and hold the strongest stocks till the interest rates are not increased. Once the interest rates are increased I will then sell. 

Stay tuned! Let us know your feedback in the comments below.


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