If you're interested in IBERIABANK Corporation (NASDAQ:IBKC), 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. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the 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. 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.
What we can learn from IBKC's beta value
Zooming in on IBERIABANK, we see it has a five year beta of 1.52. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. Based on this history, investors should be aware that IBERIABANK are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether IBERIABANK is growing earnings and revenue. You can take a look for yourself, below.
Does IBKC's size influence the expected beta?
IBERIABANK 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 IBERIABANK 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 IBKC is a good investment for you, we also need to consider important company-specific fundamentals such as IBERIABANK’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 IBKC’s future growth? Take a look at our free research report of analyst consensus for IBKC’s outlook.
- Past Track Record: Has IBKC 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 IBKC's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how IBKC measures up against other companies on valuation. You could start with this free list of prospective options.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.