U.S. Markets close in 4 hrs 49 mins

Does Proto Labs, Inc. (NYSE:PRLB) Have A Volatile Share Price?

Simply Wall St

If you own shares in Proto Labs, Inc. (NYSE:PRLB) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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 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. 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.

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

See our latest analysis for Proto Labs

What does PRLB's beta value mean to investors?

Given that it has a beta of 1.59, we can surmise that the Proto Labs share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Proto Labs shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it's also important to consider whether Proto Labs is growing earnings and revenue. You can take a look for yourself, below.

NYSE:PRLB Income Statement, May 20th 2019

How does PRLB's size impact its beta?

Proto Labs is a reasonably big company, with a market capitalisation of US$2.9b. Most companies this size are actively traded with decent volumes of shares changing hands each day. It takes a lot of money to influence the share price of large companies like this one. That makes it interesting to note that its share price has a history of sensitivity to market volatility. There might be some aspect of the business that means profits are leveraged to the economic cycle.

What this means for you:

Since Proto Labs 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 PRLB is a good investment for you, we also need to consider important company-specific fundamentals such as Proto Labs’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 PRLB’s future growth? Take a look at our free research report of analyst consensus for PRLB’s outlook.
  2. Past Track Record: Has PRLB 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 PRLB's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how PRLB 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.