A 138 percent gain this year for shares of Momo Inc. (MOMO) likely couldn’t have happened without healthy institutional buying as the social media company's stock continues to be a leader in a roaring Chinese market. Betting on top stocks, accompanied by strong institutional activity, can be a great recipe for long-term investors.

Being a growth stock residing in a leading sector plus a very bullish overall market, Momo makes a strong case for bullish institutional investors. Its recent 52-week high of $45.99 on August 7 may also signal further upside to come.

For MAP, the strongest indicator of positive price momentum is by measuring potential institutional accumulation. Notably, we have flagged 15 potential institutional buy signals in Momo since the beginning of the year, which is important when looking for long-term winning stock candidates. In the chart below, Momo's recent 52-week closing high is accompanied by strong accumulation.

Chart source: TradingView  

MAP’s process focuses on identifying companies with healthy fundamentals accompanied by outsized unusual institutional activity to try and measure potential accumulation/distribution at the single stock level. By studying these data points, we can hypothesize which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

Many of the best-performing stocks over the years have exhibited continual institutional support, telling a story of where big firms may see opportunity. A company, like Momo, which resides in a strong sector (Chinese stocks have been on a tear this year), is quickly growing its revenues, and growing its earnings may keep institutions holding for years to come.

When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for Momo being:

  • Recent 52-week closing highs achieved ($45.99 on August 7)
  • Year-to-date outperformance vs. the overall market (+~127% vs S&P 500)
  • Year-to-date outperformance vs. the sector (+~118% vs XLK)
  • And most importantly, institutional support

On top of a great technical picture, one should also make an effort to see if the fundamental picture supports a long-term investment. The areas to consider important for continual institutional support are:

  • Increasing one-year EPS growth rate (+40%)
  • Increasing one-year sales growth rate (+312%)
  • Increasing three-year EPS growth rate (+72%)

Momo checks the boxes on great technicals and fundamentals, while holding a high rankings in MAP’s scoring process, which may point to positive price momentum.

Taking a look at the overall picture of the institutional accumulation/distribution activity that we monitor for the broad market, signs continue to point to continual accumulation as quality growth equities power ahead. As Chinese stocks have had strong performance this year, we want to own leading stocks. Momo fits the bill and could remain attractive to keep institutions invested. Momo's stock has been gaining since January with a great forward technical picture, and we believe the stock has plenty more room to the upside in the coming years.

The Bottom Line

Momo represents a potential buying opportunity for long-term institutional investors. Given the strong institutional accumulation signals most recently in August, its high stock ranking, and residing in a strong sector, this company may continue to reward holders.

To learn more about MAP’s institutional signals please visit our site

Disclosure: The author holds a long position in MOMO at the time of publication.

Please see our Investment Research Disclaimer.

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