Why The Relx Share Price Deserves To Be Expensive

Why The Relx Share Price Deserves To Be Expensive

Jack Brumby  | May 21, 2019 13:01

Stockopedia’s ‘High Flyers’ are the stock market superstars. These companies tend to be the ones that fund managers jostle and barter over. They are high quality, growing stocks with a history of beating estimates - and business information and analytics group Relx (LON:REL) is one of them.

Relx is a large cap stock in the Professional Information Services industry. When we analyse Relx from a factor perspective, we find that it has a Quality Rank of 81, a Momentum Rank of 94, but a Value Rank of only 20. This is the classic factor profile of a High Flyer.

A combination of high quality, high momentum and low value is great when earnings go up but a bad place to be when things go wrong. The higher they rise the harder they fall, after all - and few stocks stay High Flyers for long. Mean reversion is a very real thing and it works like gravity on growth.

What kind of High Flying stock is Relx?

So, High Flyers tend to be riskier and more volatile than the market average. But is this true of Relx?

We can find out quickly by applying Stockopedia’s RiskRatings system, which splits the stock market into five buckets according to stock price volatility. The five classifications (from least to most volatile) are:

  • Conservative (10% of the market)
  • Balanced (15% of the market)
  • Adventurous (20% of the market)
  • Speculative (25% of the market)
  • Highly Speculative (30% of the market)

Relx is a conservative stock. This means that the group is actually in the bottom quartile of the market in terms of stock price volatility, despite being a High Flyer. This kind of stock is a possible ‘Low Volatility Anomaly’ candidate, as proposed by fund managers at Robeco: a high quality, stable stock that outperforms over time on a risk-adjusted basis (think tortoise and the hare).

Not only that, but we can see from Relx’s above average five-year return on capital employed figure of 21.4% that the group has been highly profitable over multiple years. This suggests that Relx can back up its favourable factor exposures and volatility characteristics with some kind of economic moat.

This attractive blend of factors and profitability has been noticed by the market - Relx has a one-year relative strength of 20.0%.

Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.

Original post

Jack Brumby

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