Shares in 4d Pharma (LON:DDDD) have outperformed the market over the past three months, signalling optimism on the part of investors at a time of economic uncertainty.
Based on relative price strength against the market, the company's shares are up by 47.4% over the past three months. They are currently trading at 95.22p.
That performance comes after a turbulent period for the UK's main indices. Shares sold off heavily in March over fears about the impact of Coronavirus. Markets have trended higher since, but the earnings outlook is deeply uncertain as companies wrestle with the fallout from the economic shutdown.
Trading the trend
Research by some of the investment industry's most respected strategists shows that relative strength can be one of the most consistently useful pointers to growth.
Price momentum is heavily influenced by psychology, with investors under-reacting and subsequently over-reacting to company news, driving prices higher over time.
The catch is that investor sentiment is prone to wild swings, which makes momentum risky when used on its own. Combining it with other factors, like attractive valuation, high quality and low volatility, can help reduce that risk.
Overall, the upward trend in the share price of 4d Pharma over the past three months is a promising sign. But while the stock has been outperforming recently, relying on momentum in volatile markets can be hazardous.
What does this mean for potential investors?
Shares in 4d Pharma have outperformed the market over the past three months - but momentum on its own is no guarantee of future returns.
To get a better idea about whether this trend will continue, it's worth doing some investigation yourself. Indeed, we've identified some areas of concern with 4d Pharma that you can find out about here.
Alternatively, if you'd like to find more shares with strong price momentum, you can find them on this Outperforming the Market screen.