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After the turbulence that ripped through the stock market in March, shares in Gear4music Holdings (LON:G4M) have gone on to outperform.
In terms of relative price strength, the price is up by 72.4% against the market over the past three months. The shares are currently trading at 507p.
That performance comes after a tumultuous spell for the UK equities. Markets collapsed in March on concerns about the unfolding coronavirus crisis. And while index prices have trended higher in recent weeks, there are still grave concerns about the near-term outlook for corporate earnings.
The upside for Gear4music Holdings is that investor optimism is translating into positive price momentum, which is regarded as a leading predictor of future performance...
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 Gear4music Holdings 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.
Is it time to buy or sell?
Shares in Gear4music Holdings (LON:G4M) have outperformed the market over the past three months - but is that justified? Investors may be optimistic about the future, but economic uncertainty still dominates.
To get a better understanding, it's worth looking at whether the shares are now cheap or expensive, and whether analysts have now changed their forecasts. You can find that out with the company's Stock Report on Stockopedia.