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
Reliance Steel (, 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. RS Quick Quote RS - Free Report)
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. Reliance Steel currently has a Zacks Rank of #1 (Strong 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?
Let's discuss some of the components of the Momentum Style Score for RS that show why this metals service-center company shows promise as a solid momentum pick.
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 RS, shares are up 2.91% over the past week while the Zacks Metal Products - Distribution industry is down 0.67% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 18.23% compares favorably with the industry's 4.88% 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 Reliance Steel have increased 29.59% over the past quarter, and have gained 23.43% in the last year. In comparison, the S&P 500 has only moved -4.13% and 4.65%, respectively.
Investors should also take note of RS'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. Right now, RS is averaging 389,230 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 RS.
Over the past two months, 3 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost RS's consensus estimate, increasing from $16.97 to $26.07 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.
Taking into account all of these elements, it should come as no surprise that RS is a #1 (Strong Buy) stock with a Momentum Score of B. If you've been searching for a fresh pick that's set to rise in the near-term, make sure to keep Reliance Steel on your short list.