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.
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 Advanced Energy Industries (AEIS), a company that currently holds a Momentum Style Score of A. We also talk about price change and earnings estimate revisions, two of the main aspects of the Momentum Style Score.
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. Advanced Energy Industries 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 AEIS is a promising momentum pick, let's examine some Momentum Style elements to see if this maker of power-conversion products 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 AEIS, shares are up 0.69% over the past week while the Zacks Semiconductor Equipment - Wafer Fabrication industry is down 0.74% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 4.77% compares favorably with the industry's 6.34% performance as well.
Considering longer term price metrics, like performance over the last three months or year, can be advantageous as well. Shares of Advanced Energy Industries have increased 54.39% over the past quarter, and have gained 38.36% in the last year. In comparison, the S&P 500 has only moved 14.58% and 16.6%, respectively.
Investors should also take note of AEIS'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, AEIS is averaging 273,683 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 AEIS.
Over the past two months, 5 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost AEIS's consensus estimate, increasing from $4.34 to $5.10 in the past 60 days. Looking at the next fiscal year, 5 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 AEIS is a #2 (Buy) stock with a Momentum Score of A. If you've been searching for a fresh pick that's set to rise in the near-term, make sure to keep Advanced Energy Industries on your short list.
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