Can: Meaning, Criticisms & Real-World Uses

What Is CAN SLIM?

CAN SLIM is a proprietary growth stock investment strategy and acronym developed by William J. O'Neil, the founder of Investor's Business Daily. This methodology belongs to the broader category of investment strategies and aims to help investors identify high-performing growth stocks before they experience significant price increases. Each letter in CAN SLIM represents a specific fundamental or technical characteristic to look for in a company, guiding investors toward stocks that exhibit strong growth potential and market leadership. The core idea behind CAN SLIM is to identify emerging leaders based on their earnings, sales, new innovations, and the broader market direction.

History and Origin

The CAN SLIM investment system was developed by William J. O'Neil during his time as a stockbroker in the late 1950s. O'Neil later popularized the strategy through his best-selling book, "How to Make Money in Stocks: A Winning System In Good Times or Bad," first published in 1988. The methodology gained significant traction for its emphasis on a systematic approach to stock selection, diverging from purely fundamental or technical analysis by combining elements of both. The system's underlying principles were derived from a historical study of top-performing stocks, identifying common characteristics they exhibited before their most substantial price gains.¹⁷ Since its introduction, the CAN SLIM system has consistently been reviewed for its performance against market benchmarks.¹⁶

Key Takeaways

CAN SLIM is a stock-picking strategy focused on identifying leading growth stocks.
The acronym stands for Current Quarterly Earnings, Annual Earnings Growth, New Products/Services/Management, Supply and Demand, Leader or Laggard, Institutional Sponsorship, and Market Direction.
It combines fundamental analysis (earnings, products) with technical analysis (price and volume action).
The strategy emphasizes buying stocks at precise "buy points" and employing strict risk management rules.
CAN SLIM is generally considered more effective in bullish market environments.

Formula and Calculation

The CAN SLIM methodology is not a single mathematical formula for calculating a specific value but rather a set of qualitative and quantitative criteria for stock selection. While it doesn't have a singular formula, several of its components involve analyzing financial metrics:

Current Quarterly Earnings (C): Investors look for a strong increase in earnings per share (EPS) in the most recent quarter, typically at least 25% compared to the same quarter of the previous year.¹⁵
Annual Earnings Growth (A): This criterion assesses consistent, strong annual EPS growth over the last three to five years, often targeting at least 25% or more.¹⁴
Return on Equity (ROE): While not explicitly part of the acronym, return on equity can be used to gauge the sustainability of EPS growth.¹³
Price-to-Earnings (P/E) Ratio: Although CAN SLIM focuses on growth, the relative P/E ratio compared to industry peers is often considered to ensure the stock is not excessively overvalued.¹²

For example, to calculate current quarterly earnings growth, one would compare the latest quarter's EPS to the EPS of the same quarter a year prior:

\text{Quarterly EPS Growth} = \frac{\text{Current Quarter EPS} - \text{Prior Year Same Quarter EPS}}{\text{Prior Year Same Quarter EPS}} \times 100\%

Similarly, for annual earnings growth:

\text{Annual EPS Growth} = \frac{\text{Latest Fiscal Year EPS} - \text{Previous Fiscal Year EPS}}{\text{Previous Fiscal Year EPS}} \times 100\%

Interpreting the CAN SLIM

Interpreting CAN SLIM involves evaluating a company against each of its seven criteria to determine its suitability as an investment.

C (Current Quarterly Earnings): Strong, accelerating quarterly EPS growth indicates a financially healthy and growing company. This is often the initial screen for potential investments.
A (Annual Earnings Growth): Consistent annual growth reinforces the company's fundamental strength and ability to expand its profitability over time.
N (New Products, Services, Management, or Price High): The "New" element highlights innovation or significant corporate changes that can drive future growth. A "new price high" suggests the stock is breaking out into new territory, often indicating strong demand.
S (Supply and Demand): This refers to the relationship between the supply of a stock and the demand for it, often observed through daily trading volume. Strong volume on up days and low volume on down days can signal healthy buying interest.
L (Leader or Laggard): Investors seek companies that are leaders in their respective industries, showing superior revenue growth and stock performance compared to peers.¹¹
I (Institutional Sponsorship): The presence of increasing institutional ownership (from mutual funds, pension funds, etc.) suggests that professional money managers are accumulating the stock, providing significant buying power. These institutions often report their holdings, which can be reviewed by individual investors.¹⁰
M (Market Direction): This is a critical factor, as O'Neil believed that even the best stocks struggle in a declining market. Identifying the overall market trend (bullish or bearish) helps investors decide when to be aggressive or defensive.

A stock that satisfies most or all of these criteria is considered a prime candidate for investment under the CAN SLIM methodology.

Hypothetical Example

Imagine an investor, Sarah, is looking for a new stock using the CAN SLIM system. She identifies "TechGrow Inc." based on the following:

C (Current Quarterly Earnings): TechGrow Inc. just reported Q1 EPS of $1.50, a 40% increase from $1.07 in Q1 last year. This strong growth passes the initial screen.
A (Annual Earnings Growth): Over the past five years, TechGrow's annual EPS has grown consistently at an average rate of 30%, indicating sustained profitability.
N (New Products, Services, Management, or Price High): The company recently launched a revolutionary new software platform that is gaining significant market share, representing a "new product" driver. Its stock price is also approaching a new 52-week high.
S (Supply and Demand): Sarah observes that when TechGrow's stock price rises, trading volume is significantly higher than average, and on down days, volume is light, suggesting demand outweighs supply.
L (Leader or Laggard): TechGrow Inc. is recognized as a dominant player in its niche software market, outperforming its competitors in terms of growth and innovation.
I (Institutional Sponsorship): Sarah checks recent filings (e.g., SEC Form 13F) and sees that several prominent institutional investors have significantly increased their holdings in TechGrow over the past two quarters.⁹
M (Market Direction): Sarah determines that the overall stock market, specifically the technology sector, is in a confirmed uptrend.

Based on this analysis, Sarah concludes that TechGrow Inc. is a strong CAN SLIM candidate and considers a purchase. She would then look for a precise buy point within a proper chart pattern.

Practical Applications

The CAN SLIM methodology finds practical applications primarily among individual investors and active traders seeking to identify and profit from emerging market leaders.

Stock Selection: Investors use the CAN SLIM criteria as a systematic screening tool to filter thousands of stocks down to a manageable list of high-potential candidates. This involves analyzing earnings reports, revenue figures, and product innovation.
Portfolio Construction: While CAN SLIM focuses on individual stock picks, adherents often apply its principles within a broader portfolio construction framework, often holding a concentrated portfolio of leading stocks.
Timing Market Entry and Exit: The "N" (New Price High) and "M" (Market Direction) components are crucial for timing. Investors learn to identify specific chart patterns, often after a period of price consolidation, to determine optimal purchase points. Similarly, strict sell rules are applied to limit losses or protect profits.
Risk Management: A key tenet of CAN SLIM is cutting losses quickly. O'Neil advocated selling a stock if it falls 7% to 8% below its purchase price, regardless of the original conviction. This emphasis on preserving capital is a core component of the strategy's discipline.
Fundamental and Technical Analysis Integration: CAN SLIM uniquely blends fundamental company analysis (earnings, products, management) with technical analysis (chart patterns, volume, price action), providing a comprehensive approach for evaluating stocks on stock exchanges. Publicly available financial data and charting tools are essential for applying this strategy. The Securities and Exchange Commission (SEC) mandates certain disclosures from institutional investment managers, which can provide insights into institutional ownership patterns, a key factor in CAN SLIM.⁸

Limitations and Criticisms

Despite its success for many, the CAN SLIM strategy has limitations and faces several criticisms:

Demanding and Time-Consuming: Implementing CAN SLIM effectively requires significant dedication to research, chart analysis, and continuous monitoring of earnings reports and market conditions. It is not a passive investing strategy like investing in broad index funds.
Focus on Growth, Vulnerability to Bear Markets: The heavy emphasis on growth stocks means the strategy can be particularly vulnerable during bearish market cycles or economic downturns. Growth stocks, by nature, tend to be more volatile than value stocks, and their prices can depreciate rapidly when market sentiment shifts away from growth.⁷ The challenge of consistently outperforming passive strategies like broad market indexing is a frequently debated topic in finance, highlighting the difficulties inherent in active management.
Reliance on Historical Data: While the system is built on characteristics of past winners, there's no guarantee that these patterns will repeat in the future. Market dynamics, technological advancements, and regulatory changes can alter which factors drive stock performance.
Subjectivity in "New" and "Leader": Interpreting "New Products, Services, or Management" and identifying "Leaders" can involve a degree of subjectivity. What constitutes a truly "new" game-changing product or a definitive "leader" can be open to interpretation.
Difficulty with Strict Sell Rules: Adhering strictly to the 7-8% loss-cutting rule can be emotionally challenging and might lead to selling out of positions prematurely if a stock experiences temporary, recoverable volatility.
High Volatility: The very stocks that meet CAN SLIM criteria (high-growth companies) often exhibit higher volatility and larger price swings than more mature, stable companies. This necessitates a higher tolerance for investment risk.

CAN SLIM vs. Coffee Can Investing

While both CAN SLIM and Coffee Can Investing are stock-picking strategies, they represent almost opposite philosophies in terms of portfolio management and investor involvement.

Feature	CAN SLIM	Coffee Can Investing
Approach	Active, growth-oriented, trend-following	Passive, long-term buy-and-hold, quality-focused
Selection	Strict criteria based on earnings, innovation, market leadership, and price action.	High-quality companies with consistent long-term performance (e.g., 10+ years of 10% revenue growth and 15% ROCE).⁵, ⁶
Monitoring	Requires continuous monitoring of earnings, charts, and market direction.	Minimal monitoring; "buy and forget" approach.⁴
Time Horizon	Medium-term (aims for significant gains over months to a few years).	Long-term (typically 5–10 years or more). ², ³
Goal	Outperform the market by identifying and riding strong trends.	Achieve substantial wealth creation through compounding with minimal intervention.
Risk Management	Strict stop-loss rules (e.g., 7-8% loss).	Focus on initial quality selection to mitigate long-term risk; less emphasis on short-term price fluctuations.
Investor Profile	Suited for disciplined, active investors with time to dedicate to research and execution.	Suited for patient investors seeking a low-maintenance, long-term strategy.

CAN SLIM is a dynamic system requiring constant attention to market signals and individual stock performance, whereas Coffee Can Investing prioritizes initial rigorous selection followed by a largely hands-off approach, allowing the power of compounding to work over extended periods.

FAQs

What does each letter in CAN SLIM stand for?

Each letter in CAN SLIM represents a criterion for selecting stocks: C for Current Quarterly Earnings, A for Annual Earnings Growth, N for New Products, Services, Management, or Price High, S for Supply and Demand, L for Leader or Laggard, I for Institutional Sponsorship, and M for Market Direction.

Is CAN SLIM suitable for beginners?

CAN SLIM is generally considered more suitable for experienced investors. Its reliance on precise timing, chart pattern recognition, and strict sell rules can be challenging for beginners. A solid understanding of fundamental analysis and technical analysis is beneficial.

Does CAN SLIM guarantee profits?

No investment strategy, including CAN SLIM, can guarantee profits. While the system has a documented track record of strong performance in certain periods, market fluctuations and individual stock performance are always subject to risk.

How often should an investor using CAN SLIM review their portfolio?

An investor applying the CAN SLIM method should continuously monitor their portfolio, typically daily or weekly, to track stock price and volume action, company news, and the overall market direction. Quarterly earnings reports are particularly important for evaluating the "C" and "A" criteria.

What is the role of institutional investors in CAN SLIM?

Institutional investors play a key role in CAN SLIM because their increased buying of a stock ("Institutional Sponsorship") can provide significant demand, helping to drive its price higher. Their holdings are often publicly disclosed, allowing individual investors to track their activity.