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What You Must Know About Braemar Hotels & Resorts, Inc.'s (NYSE:BHR) Beta Value

Simply Wall St

If you own shares in Braemar Hotels & Resorts, Inc. (NYSE:BHR) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 are more sensitive to general market forces than others. 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 Braemar Hotels & Resorts

What does BHR's beta value mean to investors?

Given that it has a beta of 1.13, we can surmise that the Braemar Hotels & Resorts share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Braemar Hotels & Resorts shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. 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 Braemar Hotels & Resorts fares in that regard, below.

NYSE:BHR Income Statement, January 16th 2020

How does BHR's size impact its beta?

Braemar Hotels & Resorts is a noticeably small company, with a market capitalisation of US$286m. Most companies this size are not always actively traded. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Since Braemar Hotels & Resorts 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Braemar Hotels & Resorts’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 BHR’s future growth? Take a look at our free research report of analyst consensus for BHR’s outlook.
  2. Past Track Record: Has BHR 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 BHR's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how BHR 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.