Here are two reasons why Iol Chemicals And Pharmaceuticals (NSI:IOLCP) could be a stock to watch

The Iol Chemicals And Pharmaceuticals (NSI:IOLCP) share price is currently trading at 873.8. But to try and predict what the price will look like in the next 12 months and beyond, it's worth knowing its strengths and potential weaknesses. The encouraging news for shareholders is that it shows signs of stacking up well against some important financial and technical measures...

Iol Chemicals And Pharmaceuticals is a mid-cap share with at least some exposure to two of the most influential 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 those with strong momentum in price and earnings have a habit of beating expectations.

To understand why quality and momentum are so important in a share like Iol Chemicals And Pharmaceuticals, here's a close-up view:

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Why quality matters...

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 quality metrics for Iol Chemicals And Pharmaceuticals is its 5-year Return on Capital Employed, which is 30.5%. Good, double-digit ROCEs can be a pointer to companies that can 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.

This is true at Iol Chemicals And Pharmaceuticals, where the share price has seen a 350.3% 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 compound investment returns 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 Iol Chemicals And Pharmaceuticals that you can find out about here.

Alternatively, if you'd like to find more shares that are showing signs of having strong quality and momentum, just come and take a look at this High Quality & Momentum screen.