Stockopedia’s ‘High Flyers’ are the companies that fund managers jostle and barter over: high quality, growing stocks with a history of beating estimates - and Diageo (LON:DGE) is one of them.
Diageo (Diageo) is a large cap stock in the Distillers & Wineries industry. When we analyse Diageo from a factor perspective, we find that it has a Quality Rank of 86, a Momentum Rank of 98, but a Value Rank of only 16. This is the classic factor profile of a High Flyer.
A combination of high quality, high momentum and low value is great when earnings go up but a bad place to be when things go south. The higher they rise the harder they fall, after all - and few stocks stay High Flyers for long. Mean reversion is a very real thing and it works like gravity on growth.
What kind of High Flying stock is LON:DGE?
So, High Flyers tend to be riskier and more volatile than the market average. But is this true of Diageo?
We can find out quickly by applying Stockopedia’s RiskRatings system, which splits the stock market into five buckets according to stock price volatility. The five classifications (from least to most volatile) are:
- Conservative (10% of the market)
- Balanced (15% of the market)
- Adventurous (20% of the market)
- Speculative (25% of the market)
- Highly Speculative (30% of the market)
Diageo is a conservative stock. This means that the group is actually in the bottom quartile of the market in terms of stock price volatility, despite being a High Flyer. This kind of stock is a possible ‘Low Volatility Anomaly’ candidate, as proposed by fund managers at Robeco: a high quality, stable stock that outperforms over time on a risk-adjusted basis (think tortoise and the hare).
Not only that, but we can see from Diageo’s above average five-year return on capital employed figure of 15.3% that the group has been highly profitable over multiple years. This suggests that Diageo can back up its favourable factor exposures and volatility characteristics with some kind of economic moat.
This attractive blend of factors and profitability has been noticed by the market - Diageo has a one-year relative strength of 27.9%.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.