Momentum investing revolves around the idea of following a security’s recent trend in both directions. In the “long” context, investors will “buy high, but expect to sell even higher”. With this methodology, it is essential to take advantage of trends in a stock’s price; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a security enters a fixed path, it will lead to timely and profitable trades.
While many investors like to look for momentum in stocks, it can be very difficult to define. There is a lot of debate around which metrics are best to focus on and which are poor quality indicators of future performance. The Zacks Momentum Style Score, which is part of the Zacks Style Scores, helps solve this problem for us.
Below we examine Nvidia (NVDA)a company that currently holds a Momentum Style Score of A. We also talk about price movement and earnings estimate revisions, two of the main aspects of the Momentum Style Score.
It is also important to note that Style Scores work in addition to Zacks Rank, our stock rating system which has an impressive track record of outperformance. Nvidia currently has a Zacks rating of #1 (strong 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 next month.
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Ready to beat the market?
In order to see if NVDA is a promising dynamic choice, let’s take a look at some elements of Momentum Style to see if this maker of graphics chips for gaming and artificial intelligence 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 whether buyers or sellers currently have the upper hand. It is also useful to compare a stock to its industry, as this can help investors identify the best companies in a particular area.
For NVDA, shares rose 6.98% over the past week, while industry Zacks Semiconductor – General rose 5.93% over the same period. Stocks also look pretty good longer term, as the monthly price change of 6.5% also compares favorably to the industry’s performance of 4.18%.
While any stock can see its price rise, it takes a real winner to consistently beat the market. This is why it can also be useful to look at longer-term price metrics, such as performance over the past three months or year. Over the past quarter, Nvidia shares are up 67.67% and 188.47% last year. In contrast, the S&P 500 only moved 9.35% and 20.63%, respectively.
Investors should also pay attention to NVDA’s 20-day average trading volume. Volume is a useful element 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 on above average volume is usually bearish. NVDA is currently showing an average of 39,324,940 actions over the past 20 days.
Earnings outlook
The Zacks Momentum Style Score encompasses many elements, including revisions to estimates and the movement of a stock’s price. Investors should note that earnings estimates are also important for the Zacks ranking, and a nice path here can hold promise. We recently noticed this with NVDA.
Over the past two months, 15 earnings estimates have risen versus no declines for the full year. These revisions have helped increase NVDA’s consensus estimate from $4.49 to $7.77 over the past 60 days. Looking to the next fiscal year, 12 estimates have increased while there have been no downward revisions over the same period.
Conclusion
Considering all of this, it’s no surprise that NVDA is a #1 (Strong Buy) stock with a Momentum Score of A. you to keep Nvidia on your shortlist.
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NVIDIA Corporation (NVDA): Free Stock Analysis Report
