Which company would make a better investment? Coca Cola or Pepsi? Apple or Microsoft? I’ve always been interested in comparing the investment opportunities that household names have to offer. We are therefore initiating a new column which compares the fundamentals and share price momentum of companies which trade in the UK and beyond. This column should constitute a starting point for further DIY research, and enable investors to analyse companies which operate within similar industries. We start off by comparing two UK retail companies: Tesco and M&S.
StockRank Trends
When Tesco (TSCO) said ‘you shop, we drop’, they really meant it. Take a look at Tesco’s StockRank chart below. The StockRank dipped from 77 to 66 in April 2014, when the company revealed a drop in trading profits. Then, in April 2015, the StockRank plunged from 81 to 19, as Tesco reported a £6.4 billion loss for the year ending February 2015 - the largest loss in Tesco’s history and the sixth-biggest loss ever announced by a UK listed company.
By comparison, M&S’s StockRank has gradually drifted upwards over the past 12 months. It climbed from around 50 to 70 in January 2014, as the share price jumped 14% on the back on a positive interim statement. It is also interesting to note that that M&S’s ValueRank and MomentumRank have more or less been inversely correlated. Since October 2014, the MomentumRank has risen from around 34 to 97, but the ValueRank has dropped from around 85 to 61.
This inverse correlation can be explained. The trending direction of a share price can have a considerable influence on the MomentumRank, meaning that companies with strong share price momentum can often have a higher MomentumRank. Indeed, M&S’s share price has risen by a massive 45% since October. If share prices rise, but earnings and sales remain stable, then the ValueRank may fall, given that companies with a higher valuation ratios (ie. PE or PS ratios) may have a lower ValueRank.
Let’s explore the factors driving the momentum higher…
