Does Market Volatility Impact Regional Management Corp.'s (NYSE:RM) Share Price?
If you own shares in Regional Management Corp. (NYSE:RM) 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.
Some stocks are more sensitive to general market forces than others. 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. 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.
See our latest analysis for Regional Management
What does RM's beta value mean to investors?
Given this level of beta, if the future looks like the past, we could therefore consider it likely that the stock price will experience share price volatility that is roughly similar to the overall market. Beta is worth considering, but it's also important to consider whether Regional Management is growing earnings and revenue. You can take a look for yourself, below.
Does RM's size influence the expected beta?
Regional Management is a rather small company. It has a market capitalisation of US$246m, which means it is probably under the radar of most investors. It doesn't take much money to really move the share price of a company as small as this one. That makes it somewhat unusual that it has a beta value so close to the overall market.
What this means for you:
Since Regional Management has a beta close to one, it will probably show a positive return when the market is moving up, based on history. If you're trying to generate better returns than the market, it would be worth thinking about other metrics such as cashflows, dividends and revenue growth might be a more useful guide to the future. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Regional Management’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
Future Outlook: What are well-informed industry analysts predicting for RM’s future growth? Take a look at our free research report of analyst consensus for RM’s outlook.
Past Track Record: Has RM 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 RM's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how RM 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.
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