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
Earthstone Energy (ESTE)
, a company that currently holds a Momentum Style Score of A. We also talk about price change and earnings estimate revisions, two of the main aspects of the Momentum Style Score.
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. Earthstone Energy 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 ESTE is a promising momentum pick, let’s examine some Momentum Style elements to see if this oil and gas 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 ESTE, shares are up 5.21% over the past week while the Zacks Oil and Gas – Exploration and Production – United States industry is down 2.07% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 23.2% compares favorably with the industry’s 9.43% performance as well.
While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Over the past quarter, shares of Earthstone Energy have risen 53.31%, and are up 278.84% in the last year. In comparison, the S&P 500 has only moved 8.07% and 37.95%, respectively.
Investors should also take note of ESTE’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, ESTE is averaging 219,822 shares for the last 20 days.
Earnings Outlook
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 ESTE.
Over the past two months, 2 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost ESTE’s consensus estimate, increasing from $0.16 to $0.46 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
Given these factors, it shouldn’t be surprising that ESTE is a #2 (Buy) stock and boasts a Momentum Score of A. If you’re looking for a fresh pick that’s set to soar in the near-term, make sure to keep Earthstone Energy on your short list.
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