Momentum investing revolves around the idea of following a stock's recent trend in either direction. In the 'long' context, investors will be essentially be "buying high, but hoping to sell even higher." With 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 that way. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.
While many investors like to look for momentum in stocks, this can be very tough to define. There is a lot of debate surrounding which metrics are the best to focus on and which are poor quality indicators of future performance. The Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.
Below, we take a look at Doctor Reddy's (RDY - Free Report) , 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. Doctor Reddy's 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?
Let's discuss some of the components of the Momentum Style Score for RDY that show why this pharmaceutical 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 RDY, shares are up 6.63% over the past week while the Zacks Medical - Generic Drugs industry is down 5.66% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 24.95% compares favorably with the industry's 18.12% performance as well.
Considering longer term price metrics, like performance over the last three months or year, can be advantageous as well. Over the past quarter, shares of Doctor Reddy's have risen 13.6%, and are up 16.5% in the last year. On the other hand, the S&P 500 has only moved -14.45% and -1%, respectively.
Investors should also pay attention to RDY'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. RDY is currently averaging 280,860 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 RDY.
Over the past two months, 1 earnings estimate moved higher compared to none lower for the full year. These revisions helped boost RDY's consensus estimate, increasing from $1.42 to $1.53 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.
Taking into account all of these elements, it should come as no surprise that RDY is a #2 (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 Doctor Reddy's on your short list.