If you own shares in SiteOne Landscape Supply, Inc. (NYSE:SITE) 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 are more sensitive to general market forces than others. 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.
What we can learn from SITE's beta value
With a beta of 1.02, (which is quite close to 1) the share price of SiteOne Landscape Supply has historically been about as voltile as the broader market. If the future looks like the past, we could therefore consider it likely that the stock price will experience share price volatility that is roughly similar to the overall market. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how SiteOne Landscape Supply fares in that regard, below.
How does SITE's size impact its beta?
With a market capitalisation of US$2.9b, SiteOne Landscape Supply is a pretty big company, even by global standards. It is quite likely well known to very many 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 SiteOne Landscape Supply 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as SiteOne Landscape Supply’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for SITE’s future growth? Take a look at our free research report of analyst consensus for SITE’s outlook.
- Past Track Record: Has SITE 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 SITE's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how SITE 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.