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Anyone researching Renasant Corporation (NASDAQ:RNST) might want to consider the historical volatility of the share price. 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. 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.
What we can learn from RNST's beta value
Zooming in on Renasant, we see it has a five year beta of 1.22. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If the past is any guide, we would expect that Renasant 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 Renasant is growing earnings and revenue. You can take a look for yourself, below.
How does RNST's size impact its beta?
Renasant is a fairly large company. It has a market capitalisation of US$2.0b, which means it is probably on the radar of most investors. 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:
Beta only tells us that the Renasant share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Renasant’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for RNST’s future growth? Take a look at our free research report of analyst consensus for RNST’s outlook.
- Past Track Record: Has RNST 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 RNST's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how RNST 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 email@example.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.