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




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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