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What factors will move the Rhi Magnesita Nv share price?

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Ben Hobson
·2-min read
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Shares in Rhi Magnesita Nv (LON:RHIM) are currently trading at 2480 but a key question for investors is how the economic uncertainty caused by Coronavirus will affect the price. One way of making that assessment is to examine where its strengths lie...

The Rhi Magnesita Nv share price has moved by 48.0% over the past three months. In volatile markets, many investors are keen to buy what they think are cheap stocks - but it's essential to recognise the difference between a genuine bargain and a value trap. Often, the quality of the stock makes all the difference.

The good news is that Rhi Magnesita Nv scores well against some important financial and technical measures. In particular, it has strong exposure to two influential drivers of investment returns: high quality and a relatively cheap valuation.

To understand why that matters, here's a closer look:

GET MORE DATA-DRIVEN INSIGHTS INTO LON:RHIM »

Buying quality at a fair price

Good quality stocks are loved by the market because they're more likely to be solid, dependable businesses. Profitability is important, but so is the firm's financial strength. A track record of improving finances is essential.

One of the stand out quality metrics for Rhi Magnesita Nv is that it passes 7 of the 9 financial tests in the Piotroski F-Score. The F-Score is a world-class accounting-based checklist for finding stocks with an improving financial health trend. A good F-Score suggests that the company has strong signs of quality.

While quality is important, no-one wants to overpay for a stock, so an appealing valuation is vital too. With a weaker economy, earnings forecasts are unclear right across the market. But there are some valuation measures that can help, and one of them is the Earnings Yield.

Earnings Yield compares a company's profit with its market valuation (worked out by dividing its operating profit by its enterprise value). It gives you a total value of the stock (including its cash and debt), which makes it easier to compare different stocks. As a percentage, the higher the Earnings Yield, the better value the share.

A rule of thumb for a reasonable Earnings Yield might be 5%, and the Earnings Yield for Rhi Magnesita Nv is currently 13.9%.

In summary, good quality and relatively cheap valuations are pointers to those stocks that are some of the most appealing to contrarian value investors. It's among these shares that genuine mis-pricing can be found. Once the market recognises that these quality firms are on sale, those prices often rebound.

Find the strongest shares in the stock market

Finding good quality stocks at attractive prices is a strategy used by some of the world's most successful investors. If you want to find more shares that meet these rules, you can see a comprehensive list on Stockopedia's StockRanks page.