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The Qualys (NSQ:QLYS) share price is currently trading at $124.9. But to predict what the price will look like in the next 12 months and beyond, it's worth knowing about its strengths and potential weaknesses. The encouraging news for shareholders is that it potentially stacks up well against some important financial and technical measures...
Qualys is a large-cap share with exposure to two drivers of investment returns in the stock market: high quality and strong momentum.
Quality and momentum are highly prized among investors looking for reliable investment ideas. That's because good quality stocks tend to be resilient, cash-generating businesses that can compound investment returns over time. And research suggests that positive trends in price and earnings can often persist.
To understand why quality and momentum are so important in a share like Qualys, here's a close-up view:
Why quality matters...
When it comes to stock analysis, company quality tends to be revealed in high profitability and strong industry-leading margins. These kinds of firms are stable, growing and often have accelerating sales and earnings. They also have strong and improving financial histories with no obvious signs of accountancy or bankruptcy risk.
One of the quality metrics for Qualys is its 5-year Return on Capital Employed, which is 15.2%. Long-term, double-digit ROCEs can be a hallmark of companies with the power to grow very profitably.
...and why momentum is so powerful
Positive momentum trends show up in share prices and earnings growth. You can find the clues in stocks that are trading close to their 52 week high prices and outperforming the market. They’ll often be beating broker estimates and getting forecast upgrades and recommendation changes.
There are signs of this at Qualys, where the share price has seen a 32.0% return relative to the market over the past 12 months. Market volatility and economic uncertainty can be a major drag on momentum, but previously strong stocks can be quick to recover when confidence returns.
In summary, a combination of high quality and momentum can be clues in the search for shares with the potential to deliver solid investment profits over many years.
In good times, these shares can become expensive to buy. But in volatile markets, there may be chances to buy them at cheaper prices.
What does this mean for potential investors?
Finding good quality stocks with strong momentum behind them is a strategy used by some of the world's most successful investors. But be warned: these factors don't guarantee future returns and we've identified some areas of concern with Qualys that you can find out about here.