Comstock Resources, Inc. (FRA:CX91) is trading at a valuation of 17.86. A month ago, the stock was trading at about $10. It is evident that Comstock is living to its momentum stock tag. The question, however, is whether investors can continue investing in Comstock on the basis of momentum.
There are various factors to consider. First, commodity prices are continuing to rise. Second, Europe may tighten the restrictions on oil and gas imports from Russia. There is a high possibility of pushing energy prices higher. Comstock Resources would certainly benefit from the higher prices.
Comstock Resources has a major advantage. This is the fact that its low price makes it highly liquid. Any small market activity has the potential to send the valuation through the roof. Investing in the company, therefore, creates the opportunity for high returns but not without high risk.
There are two notable fundamentals that investors must monitor closely. Comstock Resources just redeemed $244.4 million in senior notes. The extent to which this affects the cash position is not known. The company, like all other energy stocks, faces risk from hedging energy prices. Also, the level at which hedges may affect the stock is not yet clear. Investors must follow the news on the two aspects.
Comstock is overbought but waits for the RSI trend reversal
Source – TradingView
From the price chart, two pieces of information are important. The first is the RSI which is currently at 83.86. The stock is certainly in the overbought region. Any turn on the RSI should signal a sell. The second is the pattern on the candlesticks. Shorter candlesticks should signal declining momentum. That would also be a signal to sell.
Summary
Comstock Resources is a strong momentum stock. Its valuation is driven by the movements in commodity and energy prices. Investors must be keen on momentum killers for the stock.
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