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Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the 'long' context, investors will essentially be "buying high, but hoping to sell even higher." And for investors following 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 in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.
While many investors like to look for momentum in stocks, this can be very tough to define. There is a lot of debate surrounding which metrics are the best to focus on and which are poor quality indicators of future performance. The Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.
Below, we take a look at Houlihan Lokey (HLI), 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. Houlihan Lokey 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 HLI is a promising momentum pick, let's examine some Momentum Style elements to see if this investment banking company 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 is also useful to compare a security to its industry, as this can help investors pinpoint the top companies in a particular area.
For HLI, shares are up 3.19% over the past week while the Zacks Financial - Miscellaneous Services industry is down 0.52% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 4.55% compares favorably with the industry's 1.64% performance as well.
While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Shares of Houlihan Lokey have increased 15.42% over the past quarter, and have gained 66.48% in the last year. On the other hand, the S&P 500 has only moved 11.83% and 34.43%, respectively.