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How Does Helmerich & Payne, Inc. (NYSE:HP) Affect Your Portfolio Volatility?

Simply Wall St

If you're interested in Helmerich & Payne, Inc. (NYSE:HP), 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. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 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. 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.

Check out our latest analysis for Helmerich & Payne

What does HP's beta value mean to investors?

Given that it has a beta of 1.60, we can surmise that the Helmerich & Payne share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Helmerich & Payne are likely to rise strongly in times of greed, but sell off in times of fear. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Helmerich & Payne's revenue and earnings in the image below.

NYSE:HP Income Statement, December 4th 2019
NYSE:HP Income Statement, December 4th 2019

Does HP's size influence the expected beta?

Helmerich & Payne is a reasonably big company, with a market capitalisation of US$4.2b. Most companies this size are actively traded with decent volumes of shares changing hands each day. It takes a lot of money to influence the share price of large companies like this one. That makes it interesting to note that its share price has a history of sensitivity to market volatility. There might be some aspect of the business that means profits are leveraged to the economic cycle.

What this means for you:

Since Helmerich & Payne has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. In order to fully understand whether HP is a good investment for you, we also need to consider important company-specific fundamentals such as Helmerich & Payne’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 HP’s future growth? Take a look at our free research report of analyst consensus for HP’s outlook.

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

  3. Other Interesting Stocks: It's worth checking to see how HP measures up against other companies on valuation. You could start with this free list of prospective options.

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.