Why the Focusrite share price (LON:TUNE) might encounter turbulence

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 Focusrite (LON:TUNE)is one of them.

Focusrite is a small cap stock in the Phones & Handheld Devices industry. When we analyse Focusrite from a factor perspective, we find that it has a Quality Rank of 97, a Momentum Rank of 84, but a Value Rank of only 16. This is the classic factor profile of a High Flyer.

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.

What kind of High Flying stock is Focusrite?

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

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)

Focusrite is an adventurous 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 Focusrite’s above average five-year return on capital employed figure of 32.0% that the group has been highly profitable over multiple years. This suggests that Focusrite 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.

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