- Momentum can be due to the market catching up to an overlooked story
- It's important to tread carefully and look at underlying trends, not just rebounds
After a stock has been through a very strong rally deciding whether or not to invest can be a fine call and momentum investing can be risky even when so far only smaller gains have been made. To make the decision to invest there must be sustainably improving fundamentals, a solid investment story and evident value should always still be present: that can still be the case even after a stellar share price rise. In two of the three stocks this week (from our recent earnings upgrade momentum screen), we do still see value while the other is more likely only to be riding an economic anomaly.
Cake Box (CBOX) – this growing franchise business that sells egg-free cakes for special occasions offers a long horizon of EPS growth on a number of fronts. Smart physical expansion and a long maturity profile for existing branches should drive EPS growth of more than 20 per cent for at least three years. Previously unknown and misunderstood, this interesting business still looks to offer value.