Daqo New Energy (DQ) is a Great Momentum Stock: Should You Buy?
Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the 'long' context, investors will essentially be "buying high, but hoping to sell even higher." And for investors following this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.
While many investors like to look for momentum in stocks, this can be very tough to define. There is a lot of debate surrounding which metrics are the best to focus on and which are poor quality indicators of future performance. The Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.
Below, we take a look at Daqo New Energy (DQ), a company that currently holds a Momentum Style Score of B. We also talk about price change and earnings estimate revisions, two of the main aspects of the Momentum Style Score.
It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. Daqo New Energy currently has a Zacks Rank of #1 (Strong Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of A or B outperform the market over the following one-month period.
You can see the current list of Zacks #1 Rank Stocks here >>>
Set to Beat the Market?
In order to see if DQ is a promising momentum pick, let's examine some Momentum Style elements to see if this solar panel parts maker holds up.
Looking at a stock's short-term price activity is a great way to gauge if it has momentum, since this can reflect both the current interest in a stock and if buyers or sellers have the upper hand at the moment. It is also useful to compare a security to its industry, as this can help investors pinpoint the top companies in a particular area.
For DQ, shares are up 32.09% over the past week while the Zacks Chemical - Specialty industry is up 4.89% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 75.11% compares favorably with the industry's 3.2% performance as well.
Considering longer term price metrics, like performance over the last three months or year, can be advantageous as well. Shares of Daqo New Energy have increased 82.74% over the past quarter, and have gained 389.74% in the last year. In comparison, the S&P 500 has only moved 8.67% and 18.38%, respectively.
Investors should also pay attention to DQ's average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. DQ is currently averaging 544,629 shares for the last 20 days.
The Zacks Momentum Style Score encompasses many things, including estimate revisions and a stock's price movement. Investors should note that earnings estimates are also significant to the Zacks Rank, and a nice path here can be promising. We have recently been noticing this with DQ.
Over the past two months, 2 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost DQ's consensus estimate, increasing from $7.37 to $9.58 in the past 60 days. Looking at the next fiscal year, 2 estimates have moved upwards while there have been no downward revisions in the same time period.
Taking into account all of these elements, it should come as no surprise that DQ is a #1 (Strong Buy) stock with a Momentum Score of B. If you've been searching for a fresh pick that's set to rise in the near-term, make sure to keep Daqo New Energy on your short list.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.