CANSLIM is an acronym for signs that a particular stock is a winner.
It was devised by William O'Neil in his book "How to Make Money in Stocks," a book that championed the ideas that: 1) Individuals should think very seriously about managing their own money; 2) Individual investors should have access to the same sort of information that the institutions have; and 3) that the financial media focuses much too intently on market bears, gloom-and-doomers who seem to entirely disregard the long-term performance of common stocks in the US.
CANSLIM stands for:
C is for current quarterly earnings per share or EPS. O'Neil maintains that you should look for stocks that have an 18% to 20% increase in earnings per quarter. This is a sign that the business is growing, and that the increases are not coming from cost cutting measures that will eventually dry up.
N is actually one of three N's -- New Management, New Products, New Highs. The company should be coming out of a price basing structure about to make a new high in price. New management should be replacing an otherwise badly run operation. Revolutionary New products should have the potential to add strong new revenues. And lastly, new one year highs. Contrary to popular opinion, O'Neil has data that shows stocks which hit new highs continue to increase.
S is for Supply and Demand or Shares Outstanding. O'Neil prefers small- to medium-sized companies with big volume demand.
L stands for Leader or Laggard. He prefers to concentrate in stocks with a relative strength of 80 or higher. In Investors Business Daily, they calculate relative strength for every stock by taking the price one year ago, the price today, computing the change, and comparing them to all other stocks. Relative strength is on a scale of 0 to 99, with 99 to being the highest.
I is for institutional ownership. O'Neil wants one or two of the better performing mutual funds to have taken a position; and
M is for market direction. O'Neil doesn't like to invest if he thinks there's a bear market. He prefers to wait until he thinks the market is more positive.