Dynamic investing involves following the recent trend of a stock, which can be both ways. In the “long” context, investors “will buy at a high price, but hope to sell even higher”. And for investors who follow this methodology, it is essential to take advantage of trends in a stock’s price; once a stock establishes a price, it is more than likely to continue moving in that direction. The goal is that once a stock moves towards a fixed path, it will lead to timely and profitable trades.
While momentum is a popular characteristic of stocks, it can be difficult to define. The debate over which best and worst metrics to focus on is a long one, but the Zacks Momentum Style Score, which is part of the Zacks Style Scores, helps us solve this problem.
Below we take a look Choice Hotels (CHH – Free report) , which currently has a Momentum Style Score of A. We also discuss some of the main drivers of the Momentum Style Score, such as price changes and revisions to earnings estimates.
It’s also important to note that Style Scores work as a supplement to the Zacks Leaderboard, our stock rating system that has an impressive track record of outperformance. Choice Hotels currently has a Zacks rank of # 1 (strong buy). Our research shows that stocks ranked Zacks Rank # 1 (Strong Buy) and # 2 (Buy) and Style A or B scores outperform the market over the following month period.
You can see the current list of Zacks # 1 ranking actions here >>>
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Let’s discuss some of the components of the Momentum Style Score for CHH that show why this hotel franchisor holds promise as a solid choice.
A good momentum benchmark for a stock is to look at its short-term price activity, as this can reflect both current interest and whether buyers or sellers currently have the upper hand. It is also useful to compare a title to its industry; it can show investors the best companies in a particular area.
For CHH, shares are up 4.73% over the past week, while Zacks’ hotel and motel industry is up 2.13% over the same period. Stocks are also doing very well over a longer time frame, as the 13.04% monthly price change also compares favorably with the industry’s 6.34% performance.
Considering longer-term pricing metrics, such as performance over the past three months or the past year, can also be beneficial. Choice Hotels shares rose 15.26% in the last quarter and 47.04% last year. In contrast, the S&P 500 moved only 1.3% and 30.48%, respectively.
Investors should also take note of CHH’s 20-day average trading volume. Volume is useful in many ways, and the 20-day average sets a good price / volume benchmark; a rising stock with above average volume is usually a bullish sign, while a falling stock with above average volume is usually bearish. Currently, CHH owns an average of 262,732 shares over the past 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 also remain at the heart of Zacks Rank. A beautiful path here can help to be promising, and we recently saw that with CHH.
In the past two months, 5 profit estimates have increased compared to none less for the entire year. These revisions helped increase the consensus estimate of CHH from $ 3.66 to $ 3.93 in the past 60 days. For the next fiscal year, 4 estimates have increased while there has been no downward revision during the same period.
Considering all of these, it’s no surprise that CHH is a # 1 (strong buy) stock with a Momentum score of A. If you’re looking for a new pick that’s expected to rise in the near future term, make sure you keep Choice Hotels on your shortlist.