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Buying Checklist 87

Also, when Lululemon launched its big move, it had an Accumulation/
Distribution Rating of B+, indicating moderate to heavy buying by institu-
tional investors over the last 13 weeks. And just a few days before it
launched its big move, it released its latest earnings report and professional
investors poured in, driving a spike in trading volume that was over 600%
higher than normal.
So while Lululemon did have a flaw or two, it was strong overall, and it
had the three most important elements we look for: Big earnings; a new,
innovative product or service; and mutual funds were heavily buying shares.
From that point, it shot up 196% in just 10 months. (By the way, over the
next 4 quarters, the number of funds that owned Lululemon jumped from
205 to 359.)

Scenario 3: Strong but Not Accelerating Earnings Growth
®
In September 2010, Chipotle Mexican Grill was a CAN SLIM leader, but
it had a flaw: Its EPS growth had decelerated over the last 3 quarters, from
90% to 53% to 33%. Obviously, you’d prefer to see that going in the oppo-
site direction.
But again, when you ask the most important questions, Chipotle got a
“yes” in response to each one.
Did it have a new, innovative product or service? Chipotle’s chain of
organic gourmet burrito restaurants was extremely popular and well-
positioned to serve the growing number of people who wanted a healthier
alternative to typical fast food fare.
Were mutual funds heavily buying the stock? Yes. Just before it broke out,
Chipotle had a solid Accumulation/Distribution Rating of B, and the number
of funds that owned shares had risen sharply over the last 4 quarters.
Did it have big earnings growth? Since Chipotle’s EPS growth had decel-
erated in recent quarters, were there any mitigating factors that could gar-
ner a positive answer to this key question?
One was that, while deceleration is certainly not ideal, Chipotle’s earnings
growth was still above the 25% minimum we look for.
Also, its annual earnings growth over the last 3 years was 38%—well
above the 25% minimum benchmark.
Chipotle’s EPS Rating was 97, meaning in terms of overall current and
annual earnings growth, it was outpacing 97% of all stocks. Plus, it had a
solid return on equity of 19% and the highest possible Composite Rating of