U.S. Markets closed
  • S&P Futures

    4,132.50
    +4.75 (+0.12%)
     
  • Dow Futures

    33,743.00
    +34.00 (+0.10%)
     
  • Nasdaq Futures

    13,767.25
    +17.00 (+0.12%)
     
  • Russell 2000 Futures

    2,240.00
    +11.70 (+0.53%)
     
  • Crude Oil

    61.75
    +0.32 (+0.52%)
     
  • Gold

    1,784.20
    +2.20 (+0.12%)
     
  • Silver

    26.16
    -0.02 (-0.08%)
     
  • EUR/USD

    1.2019
    +0.0001 (+0.0120%)
     
  • 10-Yr Bond

    1.5540
    -0.0100 (-0.64%)
     
  • Vix

    18.71
    +1.21 (+6.91%)
     
  • GBP/USD

    1.3839
    -0.0004 (-0.0263%)
     
  • USD/JPY

    107.8890
    -0.0710 (-0.0658%)
     
  • BTC-USD

    51,666.09
    -2,617.13 (-4.82%)
     
  • CMC Crypto 200

    1,193.41
    -49.64 (-3.99%)
     
  • FTSE 100

    6,938.24
    +42.95 (+0.62%)
     
  • Nikkei 225

    28,934.46
    -253.71 (-0.87%)
     

Should You Be Concerned About Psychemedics Corporation's (NASDAQ:PMD) Historical Volatility?

  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.

If you own shares in Psychemedics Corporation (NASDAQ:PMD) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that 'Volatility is far from synonymous with risk', beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is one. A stock with a beta below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.

View our latest analysis for Psychemedics

What we can learn from PMD's beta value

Using history as a guide, we might surmise that the share price is likely to be influenced by market volatility going forward but it probably won't be particularly sensitive to it. Beta is worth considering, but it's also important to consider whether Psychemedics is growing earnings and revenue. You can take a look for yourself, below.

NasdaqCM:PMD Income Statement April 27th 2020
NasdaqCM:PMD Income Statement April 27th 2020

Does PMD's size influence the expected beta?

With a market capitalisation of US$32m, Psychemedics is a very small company by global standards. It is quite likely to be unknown to most investors. Companies this small are usually more volatile than the market, whether or not that volatility is correlated. Therefore, it's a bit surprising to see that this stock has a beta value so close to the overall market.

What this means for you:

Psychemedics 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. In order to fully understand whether PMD is a good investment for you, we also need to consider important company-specific fundamentals such as Psychemedics’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Financial Health: Are PMD’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  2. Past Track Record: Has PMD 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 PMD's historicals for more clarity.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.