Positive momentum in the Experian share price

Stockopedia’s own data points to a jarringly simple stock market truth amidst the daily whirlwind of financial data: share prices that have gone up tend to keep rising.

It sounds too good to be true, and that's probably a part of why some people distrust this momentum effect - surely successful investing can’t be so easy? One of the most convincing explanations for this stock market factor is the conservatism bias - the idea that people are slow to revise their expectations when presented with new information.

That means that when the market finds a stock breaking new all-time highs or beating broker estimates it tends to 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 credit data analytics Experian (LON:EXPN) as an example.

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.

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 Experian yields a Momentum Rank of 65 - a positive result, although there are higher momentum stocks out there.

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 Experian that you can find out about here.