Why Quality and Momentum Power Nordic (SGX:MR7)
Quality and momentum are highly prized by investors looking for reliable investment ideas. This is because good quality stocks tend to be resilient, cash-generating businesses that can compound investment returns over time. And those with strong price and earnings momentum are used to beating expectations.
Shares in Nordic (SGX:MR7) are currently trading at $0.39, but given the uncertain conditions, the question is what the future holds.
To try to predict where Nordic will head next, it’s worth knowing its potential strengths and weaknesses. Promisingly, it compares well against some important financial and technical metrics, and there are signs that it is exposed to both high quality and strong momentum…
Here’s why it’s important:
Why quality is important…
When it comes to stock analysis, company quality tends to translate into high profitability and strong margins, some of the best in the industry. These types of businesses are stable, growing, and often have accelerating sales and profits. They also have solid and improving financial histories, with no signs of bookkeeping or bankruptcy risk.
One of Nordic’s quality indicators is its return on capital employed over 5 years, which is 13.1%. Good double-digit ROCEs indicate companies that can grow very profitably.
…and why momentum is so powerful
Positive dynamic trends are evident in stock prices and earnings growth. You can find the clues in stocks that are trading near their 52-week highs and outperforming the market. They will often exceed broker estimates and get forecast updates and recommendation changes.
There are signs of that at Nordic, where the stock price has returned 81.3% relative to the market over the past 12 months. Market volatility and economic uncertainty can significantly dampen momentum, but previously strong stocks can quickly rally when confidence returns.
In summary, good quality and momentum indicate some of the best stocks on the strongest uptrends. This combination of factors can be a clue to finding stocks that can compound investment returns over many years.
In good times, these stocks 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 beware: these factors do not guarantee future returns and we have identified some areas of concern regarding Nordic which you can read about here.
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