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If you’re interested in Serco Group plc ( LON:SRP
),strange the dreamer by laini taylor then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.
Some stocks mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Beta can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said ‘volatility is far from synonymous with risk’ in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of one. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.
See our latest analysis for Serco Group What does SRP’s beta value mean to investors? With a beta of 0.92, (which is quite close to 1) the share price of Serco Group has historically been about as voltile as the broader market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won’t be particularly sensitive to it. Beta is worth considering, but it’s also important to consider whether Serco Group is growing earnings and revenue. You can take a look for yourself, below. LSE:SRP Income Statement Export January 2nd 19 Does SRP’s size influence the expected beta? Serco Group is a small cap stock with a market capitalisation of UK£1.1b. Most companies this size are actively traded. Small companies often have a high beta value because the stock price can move on relatively low capital flows. So it’s interesting to note that this stock historically has a beta value quite close to one. What this means for you: Serco Group has a beta value quite close to that of the overall market. That doesn’t tell us much on its own, so it is probably worth considering whether the company is growing, if you’re looking for stocks that will go up more than the overall market. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Serco Group’s financial health and performance track record. I urge you to continue your research by taking a look at the following: Story continues Future Outlook : What are well-informed industry analysts predicting for SRP’s future growth? Take a look at our free research report of analyst consensus for SRP’s outlook. Past Track Record : Has SRP been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of SRP’s historicals for more clarity. Other Interesting Stocks : It’s worth checking to see how SRP measures up against other companies on valuation. You could start with this free list of prospective options . To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements. The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at . View comments |
