Annual Earnings Growth(1)
As we've seen, strong current quarterly earnings are critical to picking the market's biggest winners.
However, three out of four of the biggest winners in our research also showed at least some positive annual growth rate over the five years preceding the stock's big run-up.
We'll also look at other key fundamentals you'll want to consider.
Winning Characteristics
The annual earnings per share should show consistent growth over the past three to five years.
Look for average annual EPS growth of at least 20% to 25%.
Between 1980 and 2000, the median annual growth rate of all outstanding stocks in IBD's study of the greatest stock market winners, prior to big price moves, was 36%.
Look for stocks where each of the last three years shows an increase in annual earnings, with no one single-year being down.
It is also helpful to see either the annual pre-tax profit margin and/or the annual return on equity expanding.
Return on Equity (ROE) should be 17% or higher.
The last three quarters' sales should either show acceleration in the rate of increase and/or the latest quarter should be up at least 25%.
Investing Tip:
In a few cases you may accept one down year in the last five as long as the following year's earnings quickly recover and move back to new high ground.
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