Relative Strength Alert: Will the Experian (LON:EXPN) share price keep rising?

Relative Strength Alert: Will the Experian (LON:EXPN) share price keep rising?

Article image

Shares in Experian (LON:EXPNhave been on a surge in 2019. And with the information services company set to report its full year 2019 results in a little over a month, the question for investors is where its share price will move next.

Finding stocks that can break-out and move higher on news updates is a tactic used by some of the world’s most successful traders. But it’s not a black-box strategy…

Indeed, knowing the factors that drive relative strength in share prices can help you find profitable momentum trades, too. I’m going to use Experian as an example of how this can work.

How has the Experian (LON:EXPN) share price performed?

Experian is a conservative, large cap in the Professional Information Services industry and it has a market cap of £19,074m.

Over the past year, the Experian share price has risen by 36.6%, which sounds pretty good.

But it’s important to put this in context and look at the market trend. After all, in a rising market where prices are up across the board, that gain might not be as remarkable as it seems.

As it turns out, the FTSE All-Share index is up slightly over the past year, after a tough second half of 2018. Its shares have a 1-year relative strength of 32.9%.

Read on to find out what the evidence shows may happen next...

Why relative strength matters

Relative strength is a crucial tool in the armoury of technical traders and investors. It’s an instant measure of how a stock has performed in comparison with a benchmark.

And while there are no certainties about which way a stock will move next, research shows that price trends often persist.

Studies by Narasimhan Jegadeesh and Sheridan Titman, who are leading experts on momentum, show that stocks with the strongest price strength tend to keep up the pace for anywhere up to one year.

But what causes this?

The answer is that investor behaviour plays a big role. Academics point to two key drivers:

  • Under-reaction - prices are slow to move up because investors are hesitant to bid prices higher in stocks that have already been on a strong run.
  • Delayed over-reaction - investors chasing rising prices attract the attention of other investors, who follow them into those trades, pushing prices higher and higher.

So the answer is that momentum in stocks with strong relative strength is at least partly caused by a virtuous circle of human emotion. Investors have to constantly re-price these improving shares in their own minds. 

It won’t always happen - and it might take some time - but when momentum takes over, it can push prices higher and higher.


What does this mean for potential investors?

Experian is currently among the stocks with the strongest six-month and one-year relative price strength in the market. But momentum on its own is no guarantee of future returns. 

To get a better idea about whether this momentum will continue, it's worth doing some investigation yourself. Indeed, we've identified some areas of concern with Experian that you can find out about here.


About us

Stockopedia helps individual investors make confident, profitable choices in the stock market. Our StockRank and factor investing toolbox unlocks institutional-quality insights into thousands of global stocks. Voted “Best Investment Research Tools” and “Best Research Service” at the 2021 UK Investor Magazine awards.

Experian's StockRank™

High FlyerBalanced

Experian's StockRank™

With a StockRank of 73, Experian is more attractive than 73% of the 7,581 stocks we cover in Europe, according to our proprietary ranking system.

See the full StockReport

Absolutely Perfect

"Trialed multiple other platforms - this is by far my favourite. Other platforms do not even have half the stuff that you can find on Stockopedia. Love it!"

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.