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How Does Nabors Industries Ltd. (NYSE:NBR) Affect Your Portfolio Volatility?

Saundra Reilly

If you’re interested in Nabors Industries Ltd. (NYSE:NBR), 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. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that ‘Volatility is far from synonymous with risk’, beta is still a useful factor to consider. To make good use of it you must first know 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 Nabors Industries

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What does NBR’s beta value mean to investors?

Given that it has a beta of 1.99, we can surmise that the Nabors Industries share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Nabors Industries 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 Nabors Industries is growing earnings and revenue. You can take a look for yourself, below.

NYSE:NBR Income Statement Export January 22nd 19

Could NBR’s size cause it to be more volatile?

Nabors Industries is a small company, but not tiny and little known. It has a market capitalisation of US$1.1b, which means it would be on the radar of intstitutional investors. It is quite common to see a small-cap stock with a beta greater than one. In part, that’s because relatively few investors can influence the price of a smaller company, compared to a large company.

What this means for you:

Since Nabors Industries 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 NBR is a good investment for you, we also need to consider important company-specific fundamentals such as Nabors Industries’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 NBR’s future growth? Take a look at our free research report of analyst consensus for NBR’s outlook.
  2. Past Track Record: Has NBR 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 NBR’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how NBR measures up against other companies on valuation. You could start with this free list of prospective options.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.