U.S. Markets closed

Does The TravelCenters of America Inc. (NASDAQ:TA) Share Price Tend To Follow The Market?

Simply Wall St

Anyone researching TravelCenters of America Inc. (NASDAQ:TA) might want to consider the historical volatility of the share price. 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 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. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

See our latest analysis for TravelCenters of America

What TA's beta value tells investors

Zooming in on TravelCenters of America, we see it has a five year beta of 1.81. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. Based on this history, investors should be aware that TravelCenters of America are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether TravelCenters of America is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:TA Income Statement, January 16th 2020

Could TA's size cause it to be more volatile?

TravelCenters of America is a noticeably small company, with a market capitalisation of US$135m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Beta only tells us that the TravelCenters of America 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. In order to fully understand whether TA is a good investment for you, we also need to consider important company-specific fundamentals such as TravelCenters of America’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 TA’s future growth? Take a look at our free research report of analyst consensus for TA’s outlook.
  2. Past Track Record: Has TA 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 TA's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how TA 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.