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Why the CMC Markets share price might encounter turbulence

4th Oct by Jack Brumby

Stockopedia’s ‘High Flyers’ are the stock market superstars. These companies tend to be the ones that fund managers jostle and barter over. They are high quality, growing stocks with a history of beating estimates - and CMC Markets (LON:CMCX)is one of them.

CMC Markets is a small cap stock in the Financial & Commodity Market Operators industry. When we analyse Cmc Markets from a factor perspective, we find that it has a Quality Rank of 91, a Momentum Rank of 90, but a Value Rank of only 20. This is the classic factor profile of a High Flyer.

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A combination of high quality, high momentum and low value is great when earnings go up but a bad place to be when things go wrong. The higher they rise the harder they fall, after all - and few stocks stay High Flyers for long. Mean reversion is a very real thing and it works like gravity on growth.

GET MORE DATA-DRIVEN INSIGHTS INTO LON:CMCX »

What kind of High Flying stock is CMC Markets?

So, High Flyers tend to be riskier and more volatile than the market average. But is this true of CMC Markets?

We can find out quickly by applying Stockopedia’s RiskRatings system, which splits the stock market into five buckets according to stock price volatility. The five classifications (from least to most volatile) are:

  • Conservative (10% of the market)
  • Balanced (15% of the market)
  • Adventurous (20% of the market)
  • Speculative (25% of the market)
  • Highly Speculative (30% of the market)

CMC Markets is a speculative stock. This means that the group is in the more volatile half of the market in terms of stock price volatility, as might be expected of a High Flyer. Those looking to invest here should prepare themselves for a potentially bumpy ride. 

That said, we can see from Cmc Markets’s above average five-year return on capital employed figure of 22.7% that the group has been highly profitable over multiple years. This suggests that CMC Markets can back up its favourable factor exposures and volatility characteristics with some kind of economic moat.

Find the rockstars of the stock market

High Flyers are great stocks to have in your portfolio if you think you need more momentum or quality - just look out for signs that momentum might be changing. If you want to see which other stocks qualify as High Flyers, you can find a comprehensive list on Stockopedia's StockRanks page.

Simple tools can help us better measure and understand the risks we take. That's why the Stockopedia team has been busy building new ways of understanding investment risks and company characteristics. In this webinar, we talk about two or our most popular innovations: StockRank Styles and RiskRatings. These indicators transform a ton of vital financial information into intuitive classifications, allowing you to get an instant feel for any company on any market - sign up for a free trial to see how your stocks stack up.

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Share Price
127p
Change Today
-2.46%
Cmc Markets ( )

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