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How Does Investing In ReWalk Robotics Ltd. (NASDAQ:RWLK) Impact The Volatility Of Your Portfolio?

Simply Wall St

If you own shares in ReWalk Robotics Ltd. (NASDAQ:RWLK) 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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.

View our latest analysis for ReWalk Robotics

What we can learn from RWLK's beta value

Zooming in on ReWalk Robotics, we see it has a five year beta of 1.55. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, ReWalk Robotics 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 ReWalk Robotics fares in that regard, below.

NasdaqCM:RWLK Income Statement, September 23rd 2019

Does RWLK's size influence the expected beta?

ReWalk Robotics is a noticeably small company, with a market capitalisation of US$23m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Beta only tells us that the ReWalk Robotics 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as ReWalk Robotics’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for RWLK’s future growth? Take a look at our free research report of analyst consensus for RWLK’s outlook.
  2. Past Track Record: Has RWLK 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 RWLK's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how RWLK measures up against other companies on valuation. You could start with this free list of prospective options.

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.

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. Thank you for reading.