How to Identify Growth Stocks with CAN SLIM Criteria
Identifying promising growth stocks can feel overwhelming—but it doesn’t have to be. Investor’s Business Daily’s (IBD) powerful CAN SLIM investing criteria simplify the process, making it easier to spot stocks ready to move significantly higher.
In this guide, you’ll learn exactly how to apply the CAN SLIM approach to quickly find the best stocks with high growth potential.
Step-by-Step Guide to Identifying CAN SLIM Growth Stocks
CAN SLIM focuses on a combination of fundamental and technical factors. Here’s how to apply each component:
1. Current Quarterly Earnings (C)
Look for companies showing quarterly earnings growth of at least 25% or higher. Consistent acceleration in earnings growth is even better.
Tip: Check recent earnings reports, focusing especially on EPS (earnings per share) growth compared to the same quarter last year.
2. Annual Earnings Growth (A)
The best stocks typically have annual earnings growth of at least 25% over the past 3–5 years. Stability and consistency are critical here.
Tip: Avoid stocks with erratic annual growth or those heavily dependent on single, one-time events.
3. New Product, Service, or Management (N)
Stocks often surge when the company introduces something new—innovative products, services, or new executive leadership.
Tip: Stay updated on news and press releases from companies you track.
Example of a successful “N”: Tesla’s electric vehicles, Apple’s iPhone, and Netflix’s streaming platform.
4. Supply and Demand (S)
Stocks in high demand from institutional investors tend to perform best. Look for volume surges during stock breakouts and lower float stocks.
Tip: Institutional accumulation shows smart-money interest. High volume breakouts indicate potential big moves ahead.
5. Leader or Laggard (L)
Always pick leading stocks within leading industries. Leaders outperform competitors consistently, while laggards underperform.
Tip: Use relative strength (RS) ratings (above 80 or 90) to identify market-leading stocks.
Learn about stock ratings here:
➡️ IBD Stock Ratings Explained: Composite, RS, and EPS Ratings
6. Institutional Sponsorship (I)
High-quality stocks have strong backing by top-performing mutual funds and institutional investors. Check for increasing fund ownership over recent quarters.
Tip: Increasing institutional ownership often signals upcoming stock appreciation.
7. Market Direction (M)
Only buy stocks when the market is in a confirmed uptrend. Even the best stocks can fail if the general market is declining.
Tip: Use IBD’s Market Pulse or other trend-following indicators to confirm market direction before buying.
Read more about market trends here:
➡️ Reading the Market Pulse: How to Identify Uptrends and Corrections
Putting It All Together: Quick CAN SLIM Checklist
Use this quick checklist when researching stocks:
- ✔️ Earnings growth (25%+ quarterly & annually)
- ✔️ Innovative products/services or management
- ✔️ High volume breakouts (strong demand)
- ✔️ Leader in its industry (high RS ratings)
- ✔️ Increasing institutional sponsorship
- ✔️ Positive overall market trend
When all boxes are checked, you’ve likely found a strong CAN SLIM candidate.
For real-world examples:
➡️ Top 5 Growth Stocks to Watch in 2025 (CAN SLIM Focus)
Common Mistakes When Applying CAN SLIM
Avoid these common errors when picking CAN SLIM stocks:
- Ignoring overall market direction
- Chasing stocks after extended moves
- Not cutting losses quickly
- Relying solely on fundamentals (ignoring technicals)
Learn more on how to avoid mistakes:
➡️ 7 Golden Rules from IBD for Successful Investing
Final Thoughts
Learning to identify growth stocks with CAN SLIM criteria is one of the most valuable skills you can master as a growth investor. With practice, patience, and discipline, you’ll consistently uncover stocks with significant potential—right before their big moves.
FAQs
What are CAN SLIM growth stocks?
They are stocks identified using IBD’s CAN SLIM criteria, combining earnings growth, innovation, and technical strength.
How important is earnings growth for CAN SLIM stocks?
Very important. Both quarterly and annual earnings growth of at least 25% are key criteria.
Why should I consider institutional ownership?
High institutional ownership indicates confidence from major investors, usually signaling potential future price increases.
Can CAN SLIM stocks be found in any sector?
Yes, but the best picks typically come from leading industries currently favored by the market.
Does CAN SLIM only apply to U.S. stocks?
Primarily, yes. It’s most effective on U.S. stocks, but the principles can also apply globally if the market data supports it.
