The rules for finding growth stocks basis of Jim Slater's studies from the Zulu Principle book

 

Funnymentals....

 

1. Positive 5 yr EPS growth weighted towards recent data

2. PEG Below 0.8

3. PE less than 30 or below the average for sector

4. Bullish chairman's statement

5. Gearing less than 50%, high gearing can be forgiven in times of economic revival, but deadly in in recession.

6. Cash flow per share > EPS over 5 yr period ( the cover should be at least 1.0 and 2.0 is excellent.

7. Strong liquidity (The quick ratio should be > 1 and 2 is excellent)

8. Dividend to be rising in line with EPS over a 5 yr period.

9. Interest cover greater than 1.0, if 5 or more then better

10. ROCE to be more than the cost of borrowing (Good growth stocks should have a ROCE of 30%+

11. The current ratio should be higher than the quick ratio (2 or more)

12. High net tangible asset value per share

13. Margins to be rising over 5 yrs

14. Low price to research ratio PRE, this is calculated by dividing the market cap by the R+D expenditure.

15. The capital expenditure per share should be a good deal less than cash flow per share, therefore we take the cash flow per share and deduct the capital expenditure per share. This is called owners earnings. Which when divided into the share price gives the POER and the resultant figure is best when low.

 

General bonuses....

 

16. A Competition advantage

17. A new idea or unusually good circumstances

18. Small market capitalisation preferably < 100 million

19. High relative strength in relation to the market

20. Directors holding and preferably buying large blocks of shares

21. A powerful story that is easily understood by the public

Recession proof business

 

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RISK DISCLOSURE

 

  • Futures, Forex and Stock trading contain substantial risk and are not for every investor.

  • An investor could potentially lose all or more of the initial investment.

  • Risk capital is money that can be lost without jeopardizing ones financial security or lifestyle.

  • Only risk capital should be used for trading

  • Only those with sufficient risk capital should consider trading.

  • Past performance is not necessarily indicative of future results.

 

HYPOTHETICAL PERFORMANCE DISCLOSURE

 

Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.