/canslim-screener

CANSLIM Scoring System - Phase 3 (Full CANSLIM)

Overview

This document specifies the composite scoring system for the CANSLIM screener. Phase 3 implements all 7 of 7 components (C, A, N, S, L, I, M), representing 100% of the full CANSLIM methodology weight using O'Neil's original component weights.

Component Weights

Phase 3 Weights (Full CANSLIM - 7 Components)

Legacy Phase Weights (Reference Only)

Phase 1 MVP (4 components - C, A, N, M): Renormalized to C 27%, A 36%, N 27%, M 10% Phase 2 (6 components - C, A, N, S, I, M): Renormalized to C 19%, A 25%, N 19%, S 19%, I 13%, M 6%

Component Scoring Formulas (0-100 Scale)

Each component is scored on a 0-100 point scale based on O'Neil's quantitative thresholds.

C - Current Quarterly Earnings (0-100 Points)

Input Data Required:

• Latest quarterly EPS (most recent quarter)
• Year-ago quarterly EPS (same quarter, prior year)
• Latest quarterly revenue
• Year-ago quarterly revenue

Calculation:

eps_growth_pct = ((latest_qtr_eps - year_ago_qtr_eps) / abs(year_ago_qtr_eps)) * 100
revenue_growth_pct = ((latest_qtr_revenue - year_ago_qtr_revenue) / year_ago_qtr_revenue) * 100

Scoring Logic:

if eps_growth_pct >= 50 and revenue_growth_pct >= 25:
    c_score = 100  # Explosive growth
elif eps_growth_pct >= 30 and revenue_growth_pct >= 15:
    c_score = 80   # Strong growth
elif eps_growth_pct >= 18 and revenue_growth_pct >= 10:
    c_score = 60   # Meets CANSLIM minimum
elif eps_growth_pct >= 10:
    c_score = 40   # Below threshold
else:
    c_score = 0    # Weak or negative growth

Interpretation:

• 100 points: Exceptional - Top-tier earnings acceleration
• 80 points: Strong - Well above CANSLIM threshold
• 60 points: Acceptable - Meets minimum 18% threshold
• 40 points: Weak - Below CANSLIM standards
• 0 points: Fails - Insufficient growth

Quality Checks:

• If revenue growth < 50% of EPS growth → Investigate earnings quality (potential buyback-driven)
• If revenue is negative while EPS is positive → Red flag (cost-cutting, not growth)

A - Annual EPS Growth (0-100 Points)

Input Data Required:

• Annual EPS for current year and previous 3 years (4 years total)
• Annual revenue for same 4 years (validation)

Calculation:

# 3-year CAGR (Compound Annual Growth Rate)
eps_cagr_3yr = (((current_year_eps / eps_3_years_ago) ** (1/3)) - 1) * 100
revenue_cagr_3yr = (((current_year_revenue / revenue_3_years_ago) ** (1/3)) - 1) * 100

# Growth stability check
eps_values = [year1_eps, year2_eps, year3_eps, year4_eps]  # chronological order
stable = all(eps_values[i] >= eps_values[i-1] for i in range(1, 4))  # No down years

Scoring Logic:

# Base score from EPS CAGR
if eps_cagr_3yr >= 40:
    base_score = 90
elif eps_cagr_3yr >= 30:
    base_score = 70
elif eps_cagr_3yr >= 25:
    base_score = 50  # Meets CANSLIM minimum
elif eps_cagr_3yr >= 15:
    base_score = 30
else:
    base_score = 0

# Revenue growth validation penalty
if revenue_cagr_3yr < (eps_cagr_3yr * 0.5):
    base_score = int(base_score * 0.8)  # 20% penalty for weak revenue growth

# Stability bonus
if stable:  # No down years
    base_score += 10

a_score = min(base_score, 100)  # Cap at 100

Interpretation:

• 90-100 points: Exceptional - Sustainable high growth with stability
• 70-89 points: Strong - Well above 25% threshold
• 50-69 points: Acceptable - Meets CANSLIM minimum
• 30-49 points: Weak - Below threshold
• 0-29 points: Fails - Insufficient or erratic growth

Quality Checks:

• Stability bonus (+10) rewards consistency (no down years)
• Revenue validation prevents buyback-driven EPS growth from scoring high

N - Newness / New Highs (0-100 Points)

Input Data Required:

• Current stock price
• 52-week high price
• 52-week low price
• Recent daily volume data (30 days)
• Average volume (30-day average)
• Recent news headlines (optional, for new product detection)

Calculation:

# Distance from 52-week high
distance_from_high_pct = ((current_price / week_52_high) - 1) * 100

# Breakout detection (new high on volume)
breakout_detected = (
    current_price >= week_52_high * 0.995 and  # Within 0.5% of high
    recent_volume > avg_volume * 1.4           # Volume 40%+ above average
)

# New product signal detection (keyword search in news)
new_product_signals = search_news_keywords([
    "FDA approval", "patent granted", "breakthrough", "game-changer",
    "new product", "product launch", "expansion", "acquisition"
])

Scoring Logic:

# Base score from price position
if distance_from_high_pct >= -5 and breakout_detected and new_product_signals:
    base_score = 100  # Perfect setup
elif distance_from_high_pct >= -10 and breakout_detected:
    base_score = 80   # Strong momentum
elif distance_from_high_pct >= -15 or breakout_detected:
    base_score = 60   # Acceptable
elif distance_from_high_pct >= -25:
    base_score = 40   # Weak momentum
else:
    base_score = 20   # Too far from highs

# Bonus for new product/catalyst signals (optional data)
if new_product_signals:
    if "FDA approval" in signals or "breakthrough" in signals:
        base_score += 20  # High-impact catalyst
    elif "new product" in signals or "acquisition" in signals:
        base_score += 10  # Moderate catalyst

n_score = min(base_score, 100)  # Cap at 100

Interpretation:

• 90-100 points: Exceptional - At new highs with catalysts
• 70-89 points: Strong - Near highs with volume confirmation
• 50-69 points: Acceptable - Within 15% of highs
• 30-49 points: Weak - Lacks momentum
• 0-29 points: Fails - Too far from highs, no sponsorship

Note: Price position is primary signal (80% of score). New product detection is supplementary (20% bonus).

M - Market Direction (0-100 Points)

Input Data Required:

• S&P 500 current price
• S&P 500 50-day Exponential Moving Average (EMA)
• VIX current level
• Follow-through day detection (optional advanced feature)

Calculation:

# Distance from 50-day EMA
distance_from_ema_pct = ((sp500_price / sp500_ema_50) - 1) * 100

# Trend determination
if distance_from_ema_pct >= 2.0:
    trend = "strong_uptrend"
elif distance_from_ema_pct >= 0:
    trend = "uptrend"
elif distance_from_ema_pct >= -2.0:
    trend = "choppy"
elif distance_from_ema_pct >= -5.0:
    trend = "downtrend"
else:
    trend = "bear_market"

Scoring Logic:

# Base score from trend
if trend == "strong_uptrend" and vix < 15:
    base_score = 100  # Ideal conditions
elif trend == "strong_uptrend" or (trend == "uptrend" and vix < 20):
    base_score = 80   # Favorable
elif trend == "uptrend":
    base_score = 60   # Acceptable
elif trend == "choppy":
    base_score = 40   # Neutral/caution
elif trend == "downtrend":
    base_score = 20   # Weak market
else:  # bear_market or vix > 30
    base_score = 0    # Avoid stocks entirely

# VIX adjustment (fear gauge)
if vix < 15:
    base_score += 10  # Low fear, bullish
elif vix > 30:
    base_score = 0    # Panic, override trend

# Follow-through day bonus (optional advanced feature)
if follow_through_day_detected:
    base_score += 10  # Confirmed institutional buying

m_score = min(max(base_score, 0), 100)  # Cap between 0-100

Interpretation:

• 90-100 points: Strong bull market - Aggressive buying recommended
• 70-89 points: Bull market - Standard position sizing
• 50-69 points: Early uptrend - Small initial positions
• 30-49 points: Choppy/neutral - Reduce exposure, be selective
• 10-29 points: Downtrend - Defensive posture, minimal positions
• 0 points: Bear market - Raise 80-100% cash, do not buy

Critical Rule: If M score = 0, do not buy any stocks regardless of other component scores. Market direction trumps stock selection.

L - Leadership / Relative Strength (0-100 Points)

Input Data Required:

• Stock 52-week historical prices
• S&P 500 52-week historical prices (benchmark)

Calculation:

# 52-week stock performance
stock_perf = ((current_price / price_52w_ago) - 1) * 100

# 52-week S&P 500 performance
sp500_perf = ((sp500_current / sp500_52w_ago) - 1) * 100

# Relative performance
relative_perf = stock_perf - sp500_perf

# RS Rank estimate (1-99 scale)
rs_rank = calculate_rs_rank(relative_perf)

Scoring Logic:

if rs_rank >= 90:
    base_score = 100  # Top decile leader
elif rs_rank >= 80:
    base_score = 80   # Strong leader
elif rs_rank >= 70:
    base_score = 60   # Above average
elif rs_rank >= 60:
    base_score = 40   # Average
else:
    base_score = 20   # Laggard

Interpretation:

• 90-100 points: Top RS leader - stock significantly outperforming market
• 70-89 points: Strong relative strength - outperforming market
• 50-69 points: Average relative strength
• 30-49 points: Below average - underperforming market
• 0-29 points: Laggard - significantly underperforming, avoid per CANSLIM

O'Neil's Rule: "Buy stocks with an RS rating of 80 or higher. Avoid laggards below 70."

Composite Score Calculation

Formula (Phase 3 - Full CANSLIM)

composite_score = (
    c_score * 0.15 +  # Current Earnings: 15% weight
    a_score * 0.20 +  # Annual Growth: 20% weight
    n_score * 0.15 +  # Newness: 15% weight
    s_score * 0.15 +  # Supply/Demand: 15% weight
    l_score * 0.20 +  # Leadership/RS Rank: 20% weight
    i_score * 0.10 +  # Institutional: 10% weight
    m_score * 0.05    # Market Direction: 5% weight
)

# Result: 0-100 composite score

Interpretation Bands (Phase 3)

Weakest Component Identification

For each stock, identify the component with the lowest individual score to guide further analysis:

components = {
    'C': c_score,
    'A': a_score,
    'N': n_score,
    'S': s_score,
    'L': l_score,
    'I': i_score,
    'M': m_score
}

weakest_component = min(components, key=components.get)
weakest_score = components[weakest_component]

Use Case: Helps user understand risks

• Weakest = C → Earnings deceleration risk
• Weakest = A → Lack of sustained growth history
• Weakest = N → Lacks momentum, far from highs
• Weakest = S → Distribution pattern, institutions selling
• Weakest = L → Lagging market, not a sector leader
• Weakest = I → Underowned or overcrowded, investigate further
• Weakest = M → Poor market timing, consider waiting

Formula (Phase 2 - 6 Components)

composite_score = (
    c_score * 0.19 +  # Current Earnings: 19% weight
    a_score * 0.25 +  # Annual Growth: 25% weight
    n_score * 0.19 +  # Newness: 19% weight
    s_score * 0.19 +  # Supply/Demand: 19% weight (NEW)
    i_score * 0.13 +  # Institutional: 13% weight (NEW)
    m_score * 0.06    # Market Direction: 6% weight
)

# Result: 0-100 composite score (Phase 2)

Interpretation Bands (Phase 2)

Key Improvement: Phase 2 scores include institutional validation (S, I components), making them more predictive than Phase 1.

Minimum Thresholds (Phase 2)

All 6 components must meet baseline criteria to qualify as a CANSLIM candidate:

thresholds = {
    "C": 60,  # 18%+ quarterly EPS growth
    "A": 50,  # 25%+ annual CAGR
    "N": 40,  # Within 15% of 52-week high
    "S": 40,  # Accumulation pattern (ratio ≥ 1.0)
    "I": 40,  # 30+ holders OR 20%+ ownership
    "M": 40   # Market in uptrend
}

# Stock passes if ALL components >= thresholds
passes_threshold = all(score >= thresholds[comp] for comp, score in scores.items())

Failure Interpretation:

• Fails C threshold → Earnings deceleration, avoid
• Fails A threshold → Lacks sustained growth, not a growth stock
• Fails N threshold → Too far from highs, wait for strength
• Fails S threshold → Distribution pattern, institutions selling
• Fails I threshold → Neglected by institutions, lacks backing
• Fails M threshold → Bear market, wait for market recovery

Weakest Component Identification (Phase 2)

components = {
    'C': c_score,
    'A': a_score,
    'N': n_score,
    'S': s_score,  # NEW
    'I': i_score,  # NEW
    'M': m_score
}

weakest_component = min(components, key=components.get)
weakest_score = components[weakest_component]

Additional Interpretations:

• Weakest = S → Distribution pattern, institutions selling - caution
• Weakest = I → Underowned or overcrowded, investigate further

Example Calculations

Example 1: NVDA (2023 Q2) - Exceptional Setup

Component Scores:

• C Score: 100 points (EPS +429% YoY, Revenue +101% YoY)
• A Score: 95 points (3yr CAGR 89%, stable, revenue strong)
• N Score: 98 points (New all-time high, AI catalyst, breakout volume)
• M Score: 100 points (S&P 500 in strong uptrend, VIX <15)

Composite Calculation:

composite = (100 * 0.27) + (95 * 0.36) + (98 * 0.27) + (100 * 0.10)
          = 27.0 + 34.2 + 26.46 + 10.0
          = 97.66 points

Rating: Exceptional (97.66/100) Interpretation: Textbook CANSLIM setup - all components aligned, rare multi-bagger candidate Weakest Component: A (95) - even this is exceptional Action: Strong buy, aggressive position sizing (15-20% of portfolio)

Example 2: META (2023 Q3) - Strong Setup

Component Scores:

• C Score: 85 points (EPS +164% YoY, Revenue +23% YoY)
• A Score: 78 points (3yr CAGR 28%, recovery from 2022 trough, stable recent)
• N Score: 88 points (5% from 52-week high, breakout pattern)
• M Score: 80 points (S&P 500 above EMA, VIX 18)

Composite Calculation:

composite = (85 * 0.27) + (78 * 0.36) + (88 * 0.27) + (80 * 0.10)
          = 22.95 + 28.08 + 23.76 + 8.0
          = 82.79 points

Rating: Exceptional (82.79/100) Interpretation: Strong CANSLIM candidate, slight weakness in historical growth Weakest Component: A (78) - recovering from prior downturn Action: Buy, standard position sizing (10-15% of portfolio)

Example 3: Hypothetical "Average" Stock

Component Scores:

• C Score: 60 points (EPS +20% YoY - meets minimum)
• A Score: 55 points (3yr CAGR 26%, one down year)
• N Score: 65 points (12% from high, no catalyst)
• M Score: 60 points (S&P 500 just above EMA, early uptrend)

Composite Calculation:

composite = (60 * 0.27) + (55 * 0.36) + (65 * 0.27) + (60 * 0.10)
          = 16.2 + 19.8 + 17.55 + 6.0
          = 59.55 points

Rating: Average (59.55/100) Interpretation: Meets minimum thresholds but lacks conviction Weakest Component: A (55) - inconsistent growth history Action: Watchlist only, wait for A or N component to strengthen

Example 4: Bear Market Scenario (M Score = 0)

Component Scores:

• C Score: 100 points (Excellent earnings)
• A Score: 90 points (Excellent growth)
• N Score: 95 points (New highs)
• M Score: 0 points (S&P 500 in bear market, VIX > 30)

Composite Calculation:

composite = (100 * 0.27) + (90 * 0.36) + (95 * 0.27) + (0 * 0.10)
          = 27.0 + 32.4 + 25.65 + 0
          = 85.05 points

Rating: Exceptional fundamentals (85.05) BUT bear market Interpretation: DO NOT BUY despite high score - market direction overrides stock quality Weakest Component: M (0) - bear market environment Action: Raise cash, wait for M score > 40 (market recovery signal)

Critical Lesson: This example illustrates O'Neil's principle: "You can be right about a stock but wrong about the market, and still lose money."

Scoring Evolution History

Phase 3 (current) uses the original O'Neil weights across all 7 components. Previous phases used renormalized weights to compensate for missing components:

• Phase 1 MVP (4 components): C 27%, A 36%, N 27%, M 10%
• Phase 2 (6 components): C 19%, A 25%, N 19%, S 19%, I 13%, M 6%
• Phase 3 (7 components): C 15%, A 20%, N 15%, S 15%, L 20%, I 10%, M 5% (original O'Neil weights)

Usage Notes

For Screener Implementation

1. Calculate all 7 component scores (C, A, N, S, L, I, M) for each stock
2. Apply composite formula with Phase 3 weights
3. Identify weakest component for each stock
4. Rank stocks by composite score (highest to lowest)
5. Apply market filter FIRST: If M score < 40, warn user to reduce exposure

For User Reports

Include in output:

• Composite score (0-100)
• Rating (Exceptional / Strong / Above Average / Average / Below Average / Weak)
• Individual component scores (C, A, N, S, L, I, M)
• Weakest component identification
• Interpretation guidance
• Recommended action (buy / watchlist / avoid)

Format Example:

NVDA - NVIDIA Corporation
Composite Score: 95.2 / 100 (Exceptional+)

Component Breakdown:
C (Current Earnings): 100 / 100 - Explosive growth (EPS +429% YoY)
A (Annual Growth): 95 / 100 - Exceptional 3yr CAGR (89%)
N (Newness): 98 / 100 - At new highs with AI catalyst
S (Supply/Demand): 85 / 100 - Strong accumulation pattern
L (Leadership): 92 / 100 - RS Rank 95, sector leader
I (Institutional): 90 / 100 - 6199 holders, 68% ownership
M (Market Direction): 100 / 100 - Strong bull market

Weakest Component: S (85) - Strong accumulation
Recommendation: Strong buy - Rare multi-bagger setup

Validation and Testing

Test Cases

Validate scoring system with known CANSLIM winners:

Expected Results (Phase 1 MVP):

• NVDA (2023 Q2): 95-100 points (Exceptional)
• META (2023 Q3): 80-90 points (Exceptional/Strong)
• AAPL (2009 Q3): 85-95 points (Exceptional)
• TSLA (2020 Q3): 80-90 points (Exceptional)

Expected Results for Non-CANSLIM Stocks:

• Declining earnings stocks: C < 40 → Composite < 50
• Stocks far from highs: N < 40 → Composite < 60
• In bear markets: M = 0 → Warning generated regardless of other scores

Scoring System Integrity Checks

1. Range Validation: All component scores must be 0-100
2. Weight Validation: Sum of weights = 100% (0.27 + 0.36 + 0.27 + 0.10 = 1.00)
3. Monotonicity: Higher inputs → Higher scores (linear or step-function increases)
4. Boundary Conditions: Test edge cases (zero EPS, negative growth, etc.)
5. Historical Validation: Backtest on known winners 2019-2024

This scoring system provides a quantitative, objective framework for implementing O'Neil's complete CANSLIM methodology. Phase 3 implements all 7 components with original O'Neil weights, providing comprehensive growth stock screening.