If you're interested in DLH Holdings Corp. (NASDAQ:DLHC), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.
What we can learn from DLHC's beta value
Using history as a guide, we might surmise that the share price is likely to be influenced by market volatility going forward but it probably won't be particularly sensitive to it. Beta is worth considering, but it's also important to consider whether DLH Holdings is growing earnings and revenue. You can take a look for yourself, below.
Does DLHC's size influence the expected beta?
DLH Holdings is a rather small company. It has a market capitalisation of US$58m, which means it is probably under the radar of most investors. It doesn't take much money to really move the share price of a company as small as this one. That makes it somewhat unusual that it has a beta value so close to the overall market.
What this means for you:
It is probable that there is a link between the share price of DLH Holdings 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 DLHC is a good investment for you, we also need to consider important company-specific fundamentals such as DLH Holdings’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 DLHC’s future growth? Take a look at our free research report of analyst consensus for DLHC’s outlook.
Past Track Record: Has DLHC 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 DLHC's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how DLHC measures up against other companies on valuation. You could start with this free list of prospective options.
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