Coats: share price weakness ahead?
Momentum is sticky and persists for longer than investors tend to anticipate. The downside of this is that stocks with recent negative momentum are likely to continue heading down.
This holds true on average, although there are, of course, exceptions. Trends reverse from time to time, but more often they stay the same - hence the name.
The conservatism bias is the idea that people are slow to revise their expectations when presented with new information. That means that when the market finds a stock plumbing new lows or missing broker estimates it can sometimes undervalue this development. The rational investor can take advantage of this mispricing. Stockopedia’s Momentum Rank is a convenient way of summarising the momentum attributes of a stock - let’s use Coats (LON:COA) as an example. Coats Group plc is a United Kingdom-based company engaged in industrial thread manufacturing. It offers clothing, accessories, furniture, fiber optics and healthcare items.
How to spot Momentum opportunities
The Momentum Rank is inspired by the latest research into momentum from leading academics (including Jegadeesh and Titman, George and Hwang, and Seung-Chan Park) and is based on a composite of proven Price and Estimate Momentum metrics (you find out more here).
Each company in the market is ranked from 1 to 100 for each of these momentum ratios and a composite score is calculated as a weighted average of all valid values. Applying this to Coats yields a pretty poor Momentum Rank of 23. This is a negative for Coats so care should be taken if you are considering buying into this stock.
What does this mean for potential investors?
Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with Coats that you can find out about here.
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