"The secret of the whole thing is to buy the best, highest quality companies that are making new products and services and have strong earnings and sales, when they are breaking out of bases in a rising market." — William O'Neil
In 1988, William O'Neil published How to Make Money in Stocks, a book based on his research of every major stock market winner since 1880. He discovered that the greatest growth stocks — the ones that went up 100%, 500%, even 2,000% — all shared the same set of characteristics before their biggest moves.
From this research, he built a system he called CAN SLIM — an acronym covering the seven traits that defined every major stock winner in history.
The Seven CAN SLIM Criteria
C — Current Quarterly Earnings
What to look for: Earnings per share (EPS) growth of 25–50% or more in the most recent quarter, compared to the same quarter the previous year.
O'Neil's research found that the stocks that made the biggest moves almost always had explosive EPS growth before their price advance. You want to own companies where earnings are not just good — they are accelerating.
Better still: look for acceleration. A company growing earnings at 30%, then 40%, then 55% quarter over quarter is showing the momentum that attracts institutional buyers.
Red flags:
- Slowing earnings growth compared to prior quarters
- Earnings growth driven by cost-cutting rather than revenue growth
- Heavy reliance on one-time items or GAAP adjustments
A — Annual Earnings Growth
What to look for: Annual EPS growth of 25% or more per year over the past three to five years.
A strong quarter can be noise. A three-to-five year earnings growth track record suggests a durable business with real competitive advantages — not a one-quarter wonder.
O'Neil also looked for companies with annual ROE above 17%, which signals efficient capital deployment.
N — New Product, Service, or Management
What to look for: A company that has something fundamentally new driving its growth.
The "N" in CAN SLIM is often the catalyst that turns a good company into a great stock. This can be:
- A new product that creates a new market (iPhone in 2007, Ozempic in 2023)
- A new service or business model disrupting an existing market
- A new management team with a proven track record at a turning-around company
- Reaching new price highs — O'Neil was a contrarian to the conventional wisdom that stocks at 52-week highs are "expensive"
The most powerful stocks are usually doing something new — they are not improving incrementally, they are fundamentally changing their markets.
S — Supply and Demand
What to look for: Shares outstanding below 25 million (or at least not bloated), plus heavy trading volume during price advances.
This criterion has two components:
Supply: Fewer shares outstanding means less stock to soak up institutional buying. A company with 10 million shares float needs far less buying pressure to move the stock 10% than one with 1 billion shares outstanding. O'Neil preferred smaller floats for maximum potential leverage from institutional demand.
Demand: Volume is the footprint of institutional buying. When a stock breaks out from a base on volume 40–50% above its average — that is institutional demand arriving. That's the signal O'Neil was hunting.
L — Leader or Laggard?
What to look for: Only buy the leaders in leading sectors. Avoid laggards (the cheapest stock in the group) and laggard sectors.
O'Neil used the Relative Strength Rating — a measure of how a stock's 12-month price performance compares to all other stocks. He only bought stocks with Relative Strength Ratings of 80 or higher (meaning the stock has outperformed at least 80% of all stocks over the past year).
This is counter to the conventional value-investor instinct to buy the cheapest stock in a sector. O'Neil's research showed that leaders become bigger leaders. The stock with 80 RS that breaks out often goes to 95 RS. The laggard rarely catches up.
I — Institutional Sponsorship
What to look for: At least 3–5 institutional owners (mutual funds, hedge funds, pension funds) who have been increasing their ownership.
Institutions drive the majority of stock market volume. A stock that institutional money is flowing into has the demand support needed for a sustained advance.
What you want to see:
- Growing number of institutional holders over the past three quarters
- High-quality institutional names (top-performing funds) in the ownership list
- Recent buying (not just old positions from years ago)
What to avoid:
- Heavy institutional ownership that has already peaked and is declining
- Only one or two holders with concentrated ownership
M — Market Direction
What to look for: Confirm the overall market is in an uptrend before buying any individual stock.
This is arguably the most important letter in CAN SLIM. O'Neil found that three out of four stocks follow the general market direction. Buying breakouts in a declining market is fighting the most powerful force in stocks.
O'Neil classified the market in three conditions:
- Confirmed uptrend (follow-through day): Buy aggressively
- Uptrend under pressure: Reduce exposure, be selective
- Market in correction: Raise cash, avoid new buys
The follow-through day is a specific signal: a major index gains 1.5% or more on volume above the prior session's, occurring on day 4 or later of a rally attempt following a market correction. This signals a potential new uptrend.
Base Patterns: The Technical Entry Trigger
CAN SLIM is not just a fundamental screening system — it requires a specific technical entry point: the breakout from a base.
A base is a period of controlled consolidation (typically 6–65 weeks) after a prior advance. During the base, institutional investors are accumulating shares without driving price higher. The base forms the foundation for the next advance.
Common base patterns O'Neil identified:
| Pattern | Duration | Depth | Breakout Signal |
|---|---|---|---|
| Cup with Handle | 7–65 weeks | 15–35% | Break above handle pivot on volume |
| Flat Base | 5–7 weeks | < 15% | Break above top of base on volume |
| Double Bottom | 7–16 weeks | 20–40% | Break above middle peak on volume |
| Ascending Base | 9–16 weeks | Modest | Each dip higher than prior, break above last high |
The breakout is the purchase point. O'Neil was very specific: buy within 5% of the pivot (the breakout point). Buying a stock 15% past the breakout is called "chasing" — and late entries dramatically increase risk and reduce reward.
CAN SLIM in Practice: What to Screen For
A simplified CAN SLIM screen:
- EPS growth last quarter: ≥ 25%
- Revenue growth last quarter: ≥ 25% (confirms earnings growth is real)
- Annual EPS growth: ≥ 25% per year, last 3 years
- ROE: ≥ 17%
- Relative Strength: Top 20% of all stocks
- Institutional ownership: Increasing in recent quarters
- Price action: Within 5% of a 52-week high, or breaking out from a recognizable base pattern
- Volume: Breakout day volume ≥ 40% above the 50-day average
When CAN SLIM Works Best — and When It Struggles
Works best during: Confirmed bull markets with strong sector leadership. Periods of economic expansion and technological disruption (2003–2007, 2010–2021, early-cycle recoveries).
Struggles during: Bear markets (the M criterion should keep you mostly in cash), periods of market-wide multiple compression (rising rates in 2022 crushed high-growth stocks regardless of earnings), and choppy or sideways markets without clear leadership.
CAN SLIM is a growth strategy in bull markets, not an all-weather system. O'Neil was explicit about this — the M criterion exists precisely to keep you out of individual stocks when the market tide is running against you.
Setting Up CAN SLIM-Style Alerts
Monitoring the CAN SLIM criteria is easier with real-time alerts:
- 52-week high alert: Get notified when a stock on your CAN SLIM watchlist breaks to new highs
- Volume spike alert: Alert when daily volume is 40–50%+ above average (institutional buying footprint)
- Price breakout alert: Set alerts at the specific pivot/buy point of base patterns you've identified
Rather than watching charts all day, set alerts at the technical trigger points and let them do the monitoring for you.
Key Takeaways
CAN SLIM is William O'Neil's seven-criteria growth stock system:
- C = Current quarterly EPS growth ≥ 25%
- A = Annual earnings growth ≥ 25% per year
- N = New product, service, or catalyst
- S = Small-to-moderate float + breakout volume
- L = Relative Strength ≥ 80 (buy leaders, not laggards)
- I = Increasing institutional ownership
- M = Market in confirmed uptrend (the most important filter)
The system works best in bull markets, combined with precise base-pattern breakout entries on high volume.
Set real-time 52-week high and volume spike alerts in Stock Alarm Pro — monitor your CAN SLIM watchlist for the exact breakout moment without watching charts all day.