Momentum investing revolves around the idea of following a stock's recent trend in either direction. In the '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 Arrow Electronics (ARW), which currently has a Momentum Style Score of B. 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. Arrow Electronics 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 ARW is a promising momentum pick, let's examine some Momentum Style elements to see if this electronics maker 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's also helpful to compare a security to its industry; this can show investors the best companies in a particular area.
For ARW, shares are up 12.96% over the past week while the Zacks Electronics - Parts Distribution industry is up 3.8% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 18.05% compares favorably with the industry's 12.14% performance as well.
Considering longer term price metrics, like performance over the last three months or year, can be advantageous as well. Shares of Arrow Electronics have increased 17.94% over the past quarter, and have gained 2.92% in the last year. In comparison, the S&P 500 has only moved 9.78% and -5.73%, respectively.
Investors should also take note of ARW'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. Right now, ARW is averaging 475,667 shares for the last 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 remain at the core of Zacks Rank as well. A nice path here can help show promise, and we have recently been seeing that with ARW.
Over the past two months, 4 earnings estimates moved higher compared to 1 lower for the full year. These revisions helped boost ARW's consensus estimate, increasing from $15.36 to $15.68 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.
Given these factors, it shouldn't be surprising that ARW is a #2 (Buy) stock and boasts a Momentum Score of B. If you're looking for a fresh pick that's set to soar in the near-term, make sure to keep Arrow Electronics on your short list.
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