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How Does Investing In TimkenSteel Corporation (NYSE:TMST) Impact The Volatility Of Your Portfolio?

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If you're interested in TimkenSteel Corporation (NYSE:TMST), 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 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 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 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.

See our latest analysis for TimkenSteel

What TMST's beta value tells investors

Zooming in on TimkenSteel, we see it has a five year beta of 1.96. 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, TimkenSteel shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Beta is worth considering, but it's also important to consider whether TimkenSteel is growing earnings and revenue. You can take a look for yourself, below.

NYSE:TMST Income Statement May 22nd 2020
NYSE:TMST Income Statement May 22nd 2020

How does TMST's size impact its beta?

TimkenSteel is a noticeably small company, with a market capitalisation of US$132m. Most companies this size are not always actively traded. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Since TimkenSteel 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as TimkenSteel’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 TMST’s future growth? Take a look at our free research report of analyst consensus for TMST’s outlook.

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

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

Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email 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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.