What’s in store for stock in Shoe Zone?
Shares in Shoe area (LON:SHOE) are currently trading at 143p, but a key question for investors is how the economic uncertainty caused by Covid-19 will affect the price.
The answer comes down to judging whether it is well placed to withstand economic shocks. To do this, it’s worth looking at the stock’s profile to see where its strengths lie.
The promising news is that Shoe area performs well against some important financial and technical measures. In particular, he shows signs of exposure to of them Influencing factors of investment return: high quality and strong momentum.
Decades of research show that good quality stocks are more likely to be resilient, cash-generating companies that can compound investment returns over time. Likewise, strong price and earnings momentum is an indicator of stocks with positive trends that have the potential to continue.
Why Quality Stocks Pay
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 Shoe Zone’s quality indicators is its 5-year return on capital employed, which is 12.9%. Good double-digit ROCEs indicate companies that can grow very profitably.
Harness the power of momentum
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 Shoe Zone, where the stock price has returned 66.9% 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 generate solid investment profits 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 with Shoe Zone which you can read about here.
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