Applied Digital Corporation (APLD) as a Potential Momentum Stock: Should You Invest?

Momentum investing revolves around the strategy of capitalizing on a stock's recent performance trend, which can be positive or negative. In a long-position context, investors look to purchase shares while prices are rising, with the hope of selling them at an even higher value later. For traders employing this strategy, recognizing and leveraging trends in a stock's price is crucial; once a stock adopts a specific direction, there is a likelihood it will continue along that path. The ultimate goal is for this trend to result in well-timed and profitable trades.

While momentum is a favored characteristic among stocks, defining it can sometimes be challenging. There is extensive discussion on the most effective metrics to analyze. However, the Zacks Momentum Style Score simplifies this process by providing a helpful understanding of momentum characteristics.

Let’s delve into Applied Digital Corporation (APLD - Free Report), which currently enjoys a Momentum Style Score of B. This article will highlight some key factors contributing to the Momentum Style Score, including price changes and earnings estimate revisions.

It’s worth noting that Style Scores are intended to enhance the Zacks Rank, a renowned stock rating system with a solid history of market outperformance. Presently, Applied Digital Corporation holds a Zacks Rank of #2 (Buy). Research indicates that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) along with Style Scores of A or B tend to outperform the broader market over the subsequent one-month timeframe.

Prospects for Outperforming the Market

Let’s examine some components contributing to APLD’s Momentum Style Score that suggest this stock might be an excellent pick for momentum investors.

Analyzing a stock's short-term price movements is an effective method to identify if it possesses momentum. Such analysis can signify current investor interest and indicate whether buyers or sellers hold the advantage. It’s also practical to compare a stock’s performance against its industry peers, assisting investors in identifying the strongest players in a given sector.

For APLD, shares have appreciated by 2.54% over the past week, compared to a modest gain of 0.2% for the Zacks Financial - Miscellaneous Services industry during the same timeframe. Reviewing performance over a more extended period reveals further potential; APLD has shown a remarkable monthly price change of 28.88%, significantly outpacing its industry's 0.97% increase.

While many stocks may experience price increases periodically, it takes a standout performer to consistently outperform the market. Therefore, observing longer-term price metrics such as quarterly or yearly performance is prudent. Over the past three months, shares of Applied Digital Corporation have surged by 66.78%, and over the last year, they have gained 78.33%. In contrast, the S&P 500 index has grown by only 10.75% and 34.53%, respectively, during the same periods.

Investors should also monitor APLD's average 20-day trading volume, which serves multiple purposes. This volume average establishes a price-to-volume baseline; a stock trending upward with above-average volume typically indicates bullish sentiment, while a declining stock with above-average volume signals bearish sentiment. Currently, APLD's average trading volume over the past 20 days is 16,689,773 shares.

Earnings Prospects

The Zacks Momentum Style Score is influenced by various factors, including earnings estimate revisions and price movements. Investors should recognize that earnings estimates significantly impact the Zacks Rank, and positive revisions can be promising. This trend is evident in APLD’s recent performance.

In the last two months, four earnings estimates have shifted upwards, while no estimates have moved lower for the full year. This positive momentum has lifted APLD's consensus estimate from -$1.12 to -$0.40 in the last 60 days. Additionally, for the next fiscal year, one estimate has increased, with no downward revisions noted in the same timeframe.

Conclusion

Considering all these factors, it’s easy to see why APLD is rated as a #2 (Buy) stock and holds a Momentum Score of B. If you're in the market for a new investment that looks ready for growth in the near term, Applied Digital Corporation should be on your radar.

Stocks, Investing, Momentum