Understanding Momentum Investing
Momentum investing revolves around the concept of tracking a stock’s recent price trends, whether they are upward or downward. In the broader scope, this strategy involves purchasing stocks at higher prices with the expectation that they can be sold at even greater values later. Investors who embrace this approach focus on capitalizing on established trends, operating under the assumption that once a stock sets a particular direction, it is likely to continue along that path. The ultimate aim is to identify a stock that is consistently moving in a favorable direction, facilitating timely and profitable trades.
The Challenge of Identifying Momentum
While many investors seek momentum in stocks, pinpointing it can be challenging. There is considerable discussion about which metrics effectively indicate momentum and which may lead to misleading conclusions about future performance. The Zacks Momentum Style Score, part of the Zacks Style Scores framework, seeks to clarify this issue. In this analysis, we will explore Robinhood Markets, Inc. (HOOD), which currently holds a Momentum Style Score of B. Additionally, we will examine two critical factors that contribute to this score: price changes and earnings estimate revisions. It is crucial to recognize that Style Scores enhance the Zacks Rank, a stock rating system known for its successful track record.
Analyzing Robinhood Markets, Inc.
Currently, Robinhood Markets, Inc. boasts a Zacks Rank of #1 (Strong Buy). Research indicates that stocks classified as Zacks Rank #1 (Strong Buy) or #2 (Buy), combined with Style Scores of “A or B,” tend to outperform the market in the subsequent month. Now, let’s delve into the elements of the Momentum Style Score for HOOD, which underscore its potential as a strong momentum candidate.
Short-Term Price Activity as a Momentum Indicator
Examining a stock’s short-term price movements is a useful method to assess its momentum, as these fluctuations can reflect current market interest and whether buyers or sellers dominate at any given moment. Moreover, comparing a stock with its industry peers can help investors identify top-performing companies. For HOOD, the stock has seen a 4.17% increase over the last week, while the Zacks Financial – Investment Bank sector has experienced a decline of 0.82% during the same timeframe. Additionally, the longer-term perspective shows that HOOD has achieved a monthly price change of 30.24%, significantly outpacing the industry’s performance of 8.93%.
Long-Term Performance Metrics
While many stocks can experience short-term price increases, true success is reflected in sustained market outperformance. Thus, analyzing long-term price metrics—such as performance over three months or a year—can be insightful. Over the past quarter, shares of Robinhood Markets, Inc. have surged by 150.84%, and they have skyrocketed by 317.54% over the past year. In contrast, the S&P 500 index has only grown by 16.27% and 12.91%, respectively, during the same periods.
The Importance of Trading Volume
Investors should also consider HOOD’s average trading volume over the previous 20 days. Trading volume serves multiple purposes, with the 20-day average providing a reliable price-to-volume baseline; typically, a rising stock accompanied by above-average volume signals bullish sentiment, while a declining stock with above-average volume often indicates bearish trends. Currently, HOOD’s average trading volume stands at 49,042,924 shares over the last 20 days.
Impact of Earnings Estimates
The Zacks Momentum Style Score encompasses various factors, including earnings estimate revisions and stock price movements. Earnings estimates play a vital role in the Zacks Rank, where favorable trends can be indicative of potential growth. Recently, HOOD has shown promising developments in this area. In the past two months, three earnings estimates have increased, while no estimates have decreased for the full year. These adjustments have raised HOOD’s consensus estimate from $1.22 to $1.26 over the last 60 days. For the following fiscal year, three estimates have also risen, with no downward revisions noted.
Conclusion: A Promising Momentum Pick
Given these factors, it is not surprising that HOOD is classified as a #1 (Strong Buy) stock and possesses a Momentum Score of B. For investors seeking a new stock with the potential for significant short-term gains, Robinhood Markets, Inc. should be on your radar.
