Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Two Factors To Watch At Sthree

Published 19/11/2020, 09:43
Updated 09/07/2023, 11:32

Shares in Sthree (LON:STEMS) are currently trading at 301.84 but a key question for investors is how the economic uncertainty caused by Covid-19 will affect the price in the months to come.

The answer comes down to judging whether Sthree is well placed to withstand economic shocks and ride out market volatility. To do that, it's worth looking at the profile of the stock to see where its strengths are.

Promisingly, it appears to score well against some important financial and technical measures. In particular, it has at least some exposure to two influential drivers of investment returns: high quality and strong momentum.

Decades of research shows that good quality stocks are more likely to be resilient, cash-generating businesses that can compound investment returns over time. Likewise, research suggests that positive trends in price and earnings can persist.

Why quality stocks can pay off

When it comes to stock analysis, company quality tends to be revealed 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 obvious signs of accountancy or bankruptcy risk.

One of the quality metrics for Sthree is its 5-year Return on Capital Employed, which is 50.9%. Long-term, double-digit ROCEs can be a hallmark of companies with the power to grow very profitably.

Harnessing the power of momentum

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 Sthree, where the share price has seen a 16.7% 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 deliver solid investment profits 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.

What does this mean for potential investors?

Finding good quality stocks with strong momentum behind them is a strategy used by some of the world's most successful investors. But be warned: these factors don't guarantee future returns and we've identified some areas of concern with Sthree that you can find out about here.

Alternatively, if you'd like to find more shares that are showing signs of having strong quality and momentum, just come and take a look at this High Quality & Momentum screen.

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.

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.