If you're interested in Trecora Resources (NYSE:TREC), 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 are more sensitive to general market forces than others. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
What TREC's beta value tells investors
Given that it has a beta of 1.19, we can surmise that the Trecora Resources share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Trecora Resources are likely to rise strongly in times of greed, but sell off in times of fear. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how Trecora Resources fares in that regard, below.
Could TREC's size cause it to be more volatile?
Trecora Resources is a noticeably small company, with a market capitalisation of US$179m. Most companies this size are not always actively traded. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.
What this means for you:
Beta only tells us that the Trecora Resources share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. In order to fully understand whether TREC is a good investment for you, we also need to consider important company-specific fundamentals such as Trecora Resources’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for TREC’s future growth? Take a look at our free research report of analyst consensus for TREC’s outlook.
- Past Track Record: Has TREC 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 TREC's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how TREC measures up against other companies on valuation. You could start with this free list of prospective options.
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