Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the 'long' context, investors will essentially be "buying high, but hoping to sell even higher." And for investors following this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.
Even though momentum is a popular stock characteristic, it can be tough to define. Debate surrounding which are the best and worst metrics to focus on is lengthy, but the Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.
Below, we take a look at Peabody Energy (BTU), which currently has a Momentum Style Score of A. We also discuss some of the main drivers of the Momentum Style Score, like price change and earnings estimate revisions.
It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. Peabody Energy currently has a Zacks Rank of #2 (Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of A or B outperform the market over the following one-month period.
You can see the current list of Zacks #1 Rank Stocks here >>>
Set to Beat the Market?
In order to see if BTU is a promising momentum pick, let's examine some Momentum Style elements to see if this coal mining company holds up.
Looking at a stock's short-term price activity is a great way to gauge if it has momentum, since this can reflect both the current interest in a stock and if buyers or sellers have the upper hand at the moment. It's also helpful to compare a security to its industry; this can show investors the best companies in a particular area.
For BTU, shares are up 12.44% over the past week while the Zacks Coal industry is up 4.37% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 47.25% compares favorably with the industry's 7.83% performance as well.
While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Shares of Peabody Energy have increased 116.78% over the past quarter, and have gained 612.17% in the last year. In comparison, the S&P 500 has only moved 7.3% and 33.51%, respectively.
Investors should also pay attention to BTU's average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. BTU is currently averaging 5,800,306 shares for the last 20 days.
The Zacks Momentum Style Score encompasses many things, including estimate revisions and a stock's price movement. Investors should note that earnings estimates are also significant to the Zacks Rank, and a nice path here can be promising. We have recently been noticing this with BTU.
Over the past two months, 2 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost BTU's consensus estimate, increasing from -$0.69 to $0.77 in the past 60 days. Looking at the next fiscal year, 2 estimates have moved upwards while there have been no downward revisions in the same time period.
Given these factors, it shouldn't be surprising that BTU is a #2 (Buy) stock and boasts a Momentum Score of A. If you're looking for a fresh pick that's set to soar in the near-term, make sure to keep Peabody Energy on your short list.
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