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Here Are Two Reasons Why Avon Rubber Could Be A Stock To Watch

By Ben HobsonStock MarketsJan 07, 2021 09:51
uk.investing.com/analysis/here-are-two-reasons-why-avon-rubber-could-be-a-stock-to-watch-200451844
Here Are Two Reasons Why Avon Rubber Could Be A Stock To Watch
By Ben Hobson   |  Jan 07, 2021 09:51
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The Avon Rubber (LON:AVON) share price is currently trading at 3281.7375. But to try and predict what the price will look like in the next 12 months and beyond, it's worth knowing its strengths and potential weaknesses. The encouraging news for shareholders is that it shows signs of stacking up well against some important financial and technical measures...

Avon Rubber is a mid-cap share with at least some exposure to two of the most influential drivers of investment returns in the stock market: high quality and strong momentum.

Quality and momentum are highly prized among investors looking for reliable investment ideas. That's because good quality stocks tend to be resilient, cash-generating businesses that can compound investment returns over time. And those with strong momentum in price and earnings have a habit of beating expectations.

To understand why quality and momentum are so important in a share like Avon Rubber, here's a close-up view:

Why quality matters...

When it comes to stock analysis, company quality tends to show up in high profitability and strong industry-leading margins. These kinds of firms are stable, growing and often have accelerating sales and earnings. They also have strong and improving financial histories with no signs of accountancy or bankruptcy risk.

One of the quality metrics for Avon Rubber is its 5-year Return on Capital Employed, which is 12.4%. Good, double-digit ROCEs can be a pointer to companies that can grow very profitably.

...and why momentum is so powerful

Positive momentum trends show up in share prices and earnings growth. You can find the clues in stocks that are trading close to their 52 week high prices and outperforming the market. They’ll often be beating broker estimates and getting forecast upgrades and recommendation changes.

This is true at Avon Rubber, where the share price has seen a 53.4% return relative to the market over the past 12 months. Market volatility and economic uncertainty can be a major drag on momentum, but previously strong stocks can be quick to recover when confidence returns.

In summary, good quality and momentum are pointers to some of the best stocks on the strongest uptrends. This combination of factors can be a clue to finding shares that can compound investment returns over many years.

In good times, these shares can become expensive to buy. But in volatile markets, there may be chances to buy them at cheaper prices.

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.

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Here Are Two Reasons Why Avon Rubber Could Be A Stock To Watch
 

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Here Are Two Reasons Why Avon Rubber Could Be A Stock To Watch

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Disclaimer: This content should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.
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