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What Kind Of Share Price Volatility Should You Expect For Tempur Sealy International, Inc. (NYSE:TPX)?

Simply Wall St

If you own shares in Tempur Sealy International, Inc. (NYSE:TPX) 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. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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 below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.

Check out our latest analysis for Tempur Sealy International

What we can learn from TPX's beta value

Zooming in on Tempur Sealy International, we see it has a five year beta of 1.69. 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 Tempur Sealy International 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 Tempur Sealy International is growing earnings and revenue. You can take a look for yourself, below.

NYSE:TPX Income Statement, July 23rd 2019

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

With a market capitalisation of US$4.2b, Tempur Sealy International is a pretty big company, even by global standards. It is quite likely well known to very many investors. 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 Tempur Sealy International has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. In order to fully understand whether TPX is a good investment for you, we also need to consider important company-specific fundamentals such as Tempur Sealy International’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 TPX’s future growth? Take a look at our free research report of analyst consensus for TPX’s outlook.
  2. Past Track Record: Has TPX 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 TPX's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how TPX 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.