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AlphaScreens: Earnings upgrade momentum still winning

Earnings upgrade momentum is another useful indicator of potential winning shares.
January 7, 2020

Our momentum screen's focus on forecast earnings growth and also the rate of upgrades adds rigour to the methodology. Share price momentum is still important and overall following this combination of animal spirits and analysts' forecasts has proven hugely successful in a bull market. Whether the screen results will continue to outperform if the market has a tougher time in 2020 is not certain but where companies fail one or two tests, at least we have a hint of where companies' individual momentum stories could come unstuck. 

  • Top of the FTSE All Share momentum screen is digital services business Kainos (KNOS) – the shares are up 65 per cent in three months and they still meet all our screen criteria.
  • Liontrust Asset Management (LIO) and gaming business Rank Group (RNK) also get full marks and have seen three-month price returns of over 50 and 40 per cent, respectively.
  • There aren’t any really big companies scoring well but interesting firms valued at over £1bn include Games Workshop (GAW), which only fails the two-year forecast earnings growth test. This business has been a star in the last two years, so it is interesting to keep tabs on any signal analysts expect its rate of growth to slow.
  • Over on Aim, the eye is drawn to CentralNic (CNIC) a holding company for domain name services - the shares are up 88 per cent in three months – and Volex (VLX), a power cord and cable assembly specialist - shares are up 78 per cent in three months. Both firms fail the two year forward earnings forecast test which is a reason to pause and reconsider the investment case but also could be a manifestation of the underreaction to good news that in part explains the momentum effect.
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