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Does Landstar System, Inc. (NASDAQ:LSTR) Have A Volatile Share Price?

Simply Wall St

If you're interested in Landstar System, Inc. (NASDAQ:LSTR), 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 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 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.

Check out our latest analysis for Landstar System

What we can learn from LSTR's beta value

Given that it has a beta of 1.29, we can surmise that the Landstar System share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Landstar System shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 Landstar System's revenue and earnings in the image below.

NasdaqGS:LSTR Income Statement, December 5th 2019
NasdaqGS:LSTR Income Statement, December 5th 2019

How does LSTR's size impact its beta?

Landstar System is a reasonably big company, with a market capitalisation of US$4.3b. Most companies this size are actively traded with decent volumes of shares changing hands each day. It takes deep pocketed investors to influence the share price of a large company, so it's a little unusual to see companies this size with high beta values. It may be that that this company is more heavily impacted by broader economic factors than most.

What this means for you:

Since Landstar System tends to moves up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether LSTR is a good investment for you, we also need to consider important company-specific fundamentals such as Landstar System’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 LSTR’s future growth? Take a look at our free research report of analyst consensus for LSTR’s outlook.

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

  3. Other Interesting Stocks: It's worth checking to see how LSTR 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.