Momentum investing revolves around the idea of following a stock's recent trend in either direction. In "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.
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 Red Violet, Inc. (RDVT), which currently has a Momentum Style Score of A. 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. Red Violet, Inc. 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 RDVT is a promising momentum pick, let's examine some Momentum Style elements to see if this company holds up.
A good momentum benchmark for a stock is to look at its short-term price activity, as this can reflect both current interest and if buyers or sellers currently have the upper hand. 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 RDVT, shares are up 1.23% over the past week while the Zacks Internet - Software and Services industry is up 0.25% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 5.8% compares favorably with the industry's 0.44% performance as well.
Considering longer term price metrics, like performance over the last three months or year, can be advantageous as well. Shares of Red Violet, Inc. have increased 15.21% over the past quarter, and have gained 41.94% in the last year. In comparison, the S&P 500 has only moved 4.18% and 17.18%, respectively.
Investors should also pay attention to RDVT'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. RDVT is currently averaging 219,198 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 RDVT.
Over the past two months, 1 earnings estimate moved higher compared to none lower for the full year. This revision helped boost RDVT's consensus estimate, increasing from $1.48 to $1.61 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 RDVT 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 Red Violet, Inc. on your short list.
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Red Violet, Inc. (RDVT): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).