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Why quality and momentum matters for Kroger Co (NYQ:KR)

Ben Hobson
·2-min read

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.

The Kroger Co (NYQ:KR) share price is currently trading at 33.85. But given the volatile market conditions, the question now is what the future holds for it.

To try and predict where Kroger Co will head next, it's worth knowing its strengths and potential weaknesses. The good news is that it stacks up well against some important financial and technical measures, and has strong exposure to both high quality and strong momentum...

Here is why that's important:

GET MORE DATA-DRIVEN INSIGHTS INTO NYQ:KR »

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 stand-out quality metrics for Kroger Co is its 5-year Return on Capital Employed, which is a solid 13.9%. Good, double-digit ROCEs are 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 Kroger Co, where the share price has seen a 44.7% 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 knock-down prices.

Find the strongest shares in the stock market

Finding good quality stocks with strong momentum behind them 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.