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Here's Why Momentum Investors Will Love Model N (MODN)

Zacks Equity Research

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 Model N (MODN), a company that currently holds a Momentum Style Score of B. 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. Model N 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 MODN is a promising momentum pick, let's examine some Momentum Style elements to see if this provider of revenue management services to the life science and technology industries 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 is also useful to compare a security to its industry, as this can help investors pinpoint the top companies in a particular area.

For MODN, shares are up 9.62% over the past week while the Zacks Internet - Software industry is up 1.97% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 3.66% compares favorably with the industry's 0.12% performance as well.

While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Over the past quarter, shares of Model N have risen 11.89%, and are up 102.96% in the last year. On the other hand, the S&P 500 has only moved 9% and 23.88%, respectively.

Investors should also pay attention to MODN'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. MODN is currently averaging 385,698 shares for the last 20 days.

Earnings Outlook

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 MODN.

Over the past two months, 4 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost MODN's consensus estimate, increasing from $0.28 to $0.30 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.

Bottom Line

Taking into account all of these elements, it should come as no surprise that MODN 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 Model N on your short list.


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