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 China Automotive Systems (CAAS), which currently has a Momentum Style Score of B. 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. China Automotive Systems 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 CAAS is a promising momentum pick, let’s examine some Momentum Style elements to see if this auto parts supplier holds up.
A good momentum benchmark for a stock is to look at its short-term price activity, as this can reflect both current interest and if buyers or sellers currently have the upper hand. It is also useful to compare a security to its industry, as this can help investors pinpoint the top companies in a particular area.
For CAAS, shares are up 4.56% over the past week while the Zacks Automotive – Original Equipment industry is up 3.59% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 6.06% compares favorably with the industry’s 3.63% performance as well.
While any stock can see its price increase, it takes a real winner to consistently beat the market. That is why looking at longer term price metrics — such as performance over the past three months or year — can be useful as well. Shares of China Automotive Systems have increased 70.27% over the past quarter, and have gained 45.83% in the last year. On the other hand, the S&P 500 has only moved 19.59% and 11.41%, respectively.
Investors should also pay attention to CAAS’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. CAAS is currently averaging 144,534 shares for the last 20 days.
The Zacks Momentum Style Score also takes into account trends in estimate revisions, in addition to price changes. Please note that estimate revision trends remain at the core of Zacks Rank as well. A nice path here can help show promise, and we have recently been seeing that with CAAS.
Over the past two months, 1 earnings estimate moved higher compared to none lower for the full year. These revisions helped boost CAAS’s consensus estimate, increasing from -$0.03 to $0.11 in the past 60 days. Looking at the next fiscal year, 1 estimate has moved upwards while there have been no downward revisions in the same time period.
Given these factors, it shouldn’t be surprising that CAAS is a #2 (Buy) stock and boasts a Momentum Score of B. If you’re looking for a fresh pick that’s set to soar in the near-term, make sure to keep China Automotive Systems on your short list.
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China Automotive Systems, Inc. (CAAS) : Free Stock Analysis Report
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