Momentum investing with Serco (LON:SRP)

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Intriguing research into stock market price trends shows that investors behave strangely when a stock trades close to its 52-week high…

Despite flying high, holders of the shares are more likely to sell out and snatch a profit than hold on for the ride. And for anyone standing on the sidelines, a new-high feels like they’ve already missed out.

But both are wrong.

In fact, stocks with strong price trends are statistically more likely to benefit from continuing momentum. It may not feel like it, but these kinds of trends can potentially persist.

With this in mind, shares in Serco (LON:SRP) have been in an uptrend in recent months, with strong relative price strength against the market. Here’s what we’ve seen…

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Serco (LON:SRP)’s relative price strength

In terms of relative price strength the stock has performed well against the market over the past year:

  • 1 Month: 17.1%

  • 6 Months: 31.3%

  • 12 Months: 28.6%

Relative strength is a useful tool in the armoury of technical traders and investors. It’s an instant measure of how a stock has performed in comparison with a benchmark.

And while there are no certainties about which way a stock will move next, research shows that those with the strongest price strength can sometimes keep up the pace for anywhere up to one year as investors increasingly buy in to them.

Finding shares with a given relative price against your local share index is best done with a screening tool, which helps you discover shares you may have never heard of.

What does this mean for potential investors?

Serco is currently among the stocks with the strongest six-month and one-year relative price strength in the market. But momentum on its own is no guarantee of future returns.

To get a better idea about whether this momentum will continue, it’s worth doing some investigation yourself. Indeed, we’ve identified some areas of concern with Serco that you can find out about here.