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Does AAR Corp. (NYSE:AIR) Have A Particularly Volatile Share Price?

Alex Johannesen

If you’re interested in AAR Corp. (NYSE:AIR), 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. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

See our latest analysis for AAR

What AIR’s beta value tells investors

Zooming in on AAR, we see it has a five year beta of 1.17. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market the market. If this beta value holds true in the future, AAR shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 AAR fares in that regard, below.

NYSE:AIR Income Statement Export January 25th 19

Could AIR’s size cause it to be more volatile?

With a market capitalisation of US$1.3b, AAR is a small cap stock. However, it is big enough to catch the attention of professional investors. It is quite common to see a small-cap stock with a beta greater than one. In part, that’s because relatively few investors can influence the price of a smaller company, compared to a large company.

What this means for you:

Beta only tells us that the AAR 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 AIR is a good investment for you, we also need to consider important company-specific fundamentals such as AAR’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for AIR’s future growth? Take a look at our free research report of analyst consensus for AIR’s outlook.
  2. Past Track Record: Has AIR 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 AIR’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how AIR 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 editorial-team@simplywallst.com.