Leveraging Zacks Style Scores for Momentum Investing: A Case for American Eagle Outfitters

Investing in the stock market can be a challenging endeavor, but having the right tools and strategies helps investors of all levels achieve success. One effective approach for those looking to maximize their investment potential is through the use of the Zacks Style Scores. This system aids in identifying top-performing stocks that align with specific investment styles, such as value, growth, or momentum investing.

Understanding the Zacks Style Scores

The Zacks Style Scores are designed to complement the Zacks Rank by rating stocks based on their likelihood of market outperformance in the next 30 days. This rating system assigns scores from A (highest) to F (lowest), focusing on different investment attributes.

Value Score

For value investors, the Value Style Score highlights stocks that are trading below their intrinsic value, taking into account various financial ratios.

Growth Score

Growth-focused investors will find the Growth Style Score useful because it focuses on a company's financial robustness and projected growth, analyzing earnings, sales, and cash flow.

Momentum Score

Momentum investors look to capitalize on market trends, and the Momentum Style Score helps identify stocks that are experiencing strong price movements or earnings estimate revisions.

VGM Score

Finally, the VGM Score combines the aspects of Value, Growth, and Momentum into one comprehensive rating, guiding investors towards stocks that excel in all three areas.

Integrating Style Scores with the Zacks Rank

The Zacks Rank is a proprietary model that focuses on the impact of earnings estimate revisions on a company's stock performance. Stocks are ranked from #1 (Strong Buy) to #5 (Strong Sell). The Style Scores, when used alongside the Zacks Rank, greatly aid in narrowing down the selection of stocks to those with a high probability of success.

To optimize their portfolios, investors should consider stocks with a #1 or #2 Rank that also have corresponding A or B Style Scores. This combination indicates a strong earnings outlook along with favorable investment attributes. Conversely, stocks with lower Zacks Rank should generally be treated with caution, even if they have high Style Scores.

Spotlight: American Eagle Outfitters (AEO)

A case in point is American Eagle Outfitters Inc. (AEO), a specialty retailer that has distinguished itself in the market. Rated #1 (Strong Buy) on the Zacks Rank, AEO has secured a VGM Score of A, making it an attractive option for momentum investors.

AEO has demonstrated a positive trend with a share price increase of 5.9% over the past four weeks, earning it a Momentum Style Score of A. Coupled with upward revisions of earnings estimates by seven analysts for the fiscal year 2025, the consensus estimate has risen to $1.71 per share. AEO also maintains an impressive average earnings surprise of 22.7%.

Given its alluring Zacks Rank and impressive Style Scores, American Eagle Outfitters warrants a closer look by investors aiming to capitalize on momentum in the stock market.

Momentum, Investing, Strategy