Momentum investing is essentially an exception to the idea of "buying low and selling high." Investors following this style of investing are usually not interested in betting on cheap stocks and waiting long for them to recover. Instead, they believe that "buying high and selling higher" is the way to make far more money in lesser time.
Who doesn't like betting on fast-moving trending stocks? But determining the right entry point isn't easy. Often, these stocks lose momentum once their valuation moves ahead of their future growth potential. In such a situation, investors find themselves loaded up on expensive shares with limited to no upside or even a downside. So, going all-in on momentum could be risky at times.
A safer approach could be investing in bargain stocks with recent price momentum. While the Zacks Momentum Style Score (part of the Zacks Style Scores system) helps identify great momentum stocks by paying close attention to trends in a stock's price or earnings, our 'Fast-Paced Momentum at a Bargain' screen comes handy in spotting fast-moving stocks that are still attractively priced.
There are several stocks that currently pass through the screen and American Eagle Outfitters (AEO) is one of them. Here are the key reasons why this stock is a great candidate.
A dash of recent price momentum reflects growing interest of investors in a stock. With a four-week price change of 39.2%, the stock of this teen clothing retailer is certainly well-positioned in this regard.
While any stock can see a spike in price for a short period, it takes a real momentum player to deliver positive returns for a longer time frame. AEO meets this criterion too, as the stock gained 41.8% over the past 12 weeks.
Moreover, the momentum for AEO is fast paced, as the stock currently has a beta of 1.34. This indicates that the stock moves 34% higher than the market in either direction.
Given this price performance, it is no surprise that AEO has a Momentum Score of B, which indicates that this is the right time to enter the stock to take advantage of the momentum with the highest probability of success.
In addition to a favorable Momentum Score, an upward trend in earnings estimate revisions has helped AEO earn a Zacks Rank #2 (Buy). Our research shows that the momentum-effect is quite strong among Zacks Rank #1 and #2 stocks. That's because as covering analysts raise their earnings estimates for a stock, more and more investors take an interest in it, helping its price race to keep up. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>
Most importantly, despite possessing fast-paced momentum features, AEO is trading at a reasonable valuation. In terms of Price-to-Sales ratio, which is considered as one of the best valuation metrics, the stock looks quite cheap now. AEO is currently trading at 0.59 times its sales. In other words, investors need to pay only 59 cents for each dollar of sales.
So, AEO appears to have plenty of room to run, and that too at a fast pace.
In addition to AEO, there are several other stocks that currently pass through our 'Fast-Paced Momentum at a Bargain' screen. You may consider investing in them and start looking for the newest stocks that fit these criteria.
This is not the only screen that could help you find your next winning stock pick. Based on your personal investing style, you may choose from over 45 Zacks Premium Screens that are strategically created to beat the market.
However, keep in mind that the key to a successful stock-picking strategy is to ensure that it produced profitable results in the past. You could easily do that with the help of the Zacks Research Wizard. In addition to allowing you to backtest the effectiveness of your strategy, the program comes loaded with some of our most successful stock-picking strategies.
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