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Shares in Insteel Industries (NYQ:IIIN) are currently trading at $42.6 but a key question for investors is whether it's well-placed to make progress from here.
Part of the answer could come down to whether it is well placed to ride out economic shocks and any market volatility. To understand that, it's worth examining its profile to see where its strengths lie.
The promising news is that Insteel Industries shows signs of scoring positively against some important financial and technical measures. In particular, it has exposure to two influential drivers of investment returns: high quality and strong momentum.
Here is why that's is important...
Why quality stocks pay off
When it comes to stock analysis, company quality tends to show up 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 signs of accountancy or bankruptcy risk.
One of the stand out quality metrics for Insteel Industries is its 5-year Return on Capital Employed, which is 13.6%. Good, double-digit ROCEs are a pointer to companies that can grow very profitably.
Harnessing the power of momentum
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.
This is true at Insteel Industries, where the share price has seen a 37.6% 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, good quality and momentum are pointers to some of the best stocks on the strongest uptrends. This combination of factors can be a clue to finding shares that can 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 Insteel Industries that you can find out about here.