Cheesecake Factory (CAKE) is a Great Momentum Stock: Should You Buy?

Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In the "long context," investors will essentially be "buying high, but hoping to sell even higher." And for investors following this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving in that direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades.

Even though momentum is a popular stock characteristic, it can be tough to define. Debate surrounding which are the best and worst metrics to focus on is lengthy, but the Zacks Momentum Style Score, part of the Zacks Style Scores, helps address this issue for us.

Below, we take a look at Cheesecake Factory (CAKE), which currently has a Momentum Style Score of B. We also discuss some of the main drivers of the Momentum Style Score, like price change and earnings estimate revisions.

It's also important to note that Style Scores work as a complement to the Zacks Rank, our stock rating system that has an impressive track record of outperformance. Cheesecake Factory currently has a Zacks Rank of #1 (Strong Buy). Our research shows that stocks rated Zacks Rank #1 (Strong Buy) and #2 (Buy) and Style Scores of "A or B" outperform the market over the following one-month period.

You can see the current list of Zacks #1 Rank Stocks here >>>

Set to Beat the Market?

Let's discuss some of the components of the Momentum Style Score for CAKE that show why this restaurant chain shows promise as a solid momentum pick.

A good momentum benchmark for a stock is to look at its short-term price activity, as this can reflect both current interest and if buyers or sellers currently have the upper hand. It's also helpful to compare a security to its industry; this can show investors the best companies in a particular area.

For CAKE, shares are up 5.55% over the past week while the Zacks Retail - Restaurants industry is flat over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 34.29% compares favorably with the industry's 4.79% performance as well.

While any stock can see its price increase, it takes a real winner to consistently beat the market. That is why looking at longer term price metrics -- such as performance over the past three months or year -- can be useful as well. Over the past quarter, shares of Cheesecake Factory have risen 84.71%, and are up 76.55% in the last year. In comparison, the S&P 500 has only moved 5.06% and 21.84%, respectively.

Investors should also pay attention to CAKE's average 20-day trading volume. Volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. CAKE is currently averaging 2,030,730 shares for the last 20 days.

Earnings Outlook

The Zacks Momentum Style Score encompasses many things, including estimate revisions and a stock's price movement. Investors should note that earnings estimates are also significant to the Zacks Rank, and a nice path here can be promising. We have recently been noticing this with CAKE.

Over the past two months, 10 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost CAKE's consensus estimate, increasing from $4.01 to $4.47 in the past 60 days. Looking at the next fiscal year, 10 estimates have moved upwards while there have been no downward revisions in the same time period.

Bottom Line

Taking into account all of these elements, it should come as no surprise that CAKE is a #1 (Strong Buy) stock with a Momentum Score of B. If you've been searching for a fresh pick that's set to rise in the near-term, make sure to keep Cheesecake Factory on your short list.

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This article originally published on Zacks Investment Research (zacks.com).

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