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Is the Momo Inc share price too low?

Good shares at cheap prices are what the very best investors look for. At this time of economic turmoil and market volatility, could Momo Inc (NSQ:MOMO) be one of them?

When it comes to the proven drivers of stock market profits, "good" and "cheap" is the best blend of quality and value that you can get. Research shows that poor quality, expensive shares tend to underperform - but high quality, cheap shares can deliver stunning profits.

The Momo Inc share price has moved by -22.0% over the past three months and it’s currently trading at 17.5. The good news is that it scores well against some important financial and technical measures. It's a large-cap share with strong exposure to high quality and a relatively cheap valuation.

Here's an idea of where you can see that:

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GET MORE DATA-DRIVEN INSIGHTS INTO NSQ:MOMO »

Good quality

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 Momo Inc is that it passes 8 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.

Fair price

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 Momo Inc is currently 26.1%.

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.