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Investors Bancorp, Inc. (NASDAQ:ISBC): What Does Its Beta Value Mean For Your Portfolio?

Simply Wall St

Anyone researching Investors Bancorp, Inc. (NASDAQ:ISBC) 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 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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. 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 Investors Bancorp

What ISBC's beta value tells investors

Investors Bancorp has a five-year beta of 0.91. This is reasonably close to the market beta of 1, so the stock has in the past displayed similar levels of volatility to the overall market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won't be particularly sensitive to it. Beta is worth considering, but it's also important to consider whether Investors Bancorp is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:ISBC Income Statement, December 5th 2019

Does ISBC's size influence the expected beta?

Investors Bancorp is a fairly large company. It has a market capitalisation of US$3.1b, which means it is probably on the radar of most investors. We shouldn't be surprised to see a large company like this with a beta value quite close to the market average. Large companies often move roughly in line with the market. In part, that's because there are fewer individual events that are signficant enough to markedly change the value of the stock (compared to small companies, at least).

What this means for you:

It is probable that there is a link between the share price of Investors Bancorp and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that's your game, metrics such as revenue, earnings and cash flow will be more useful. In order to fully understand whether ISBC is a good investment for you, we also need to consider important company-specific fundamentals such as Investors Bancorp’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 ISBC’s future growth? Take a look at our free research report of analyst consensus for ISBC’s outlook.
  2. Past Track Record: Has ISBC 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 ISBC's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how ISBC 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.