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One Thing To Remember About The First Financial Bankshares, Inc. (NASDAQ:FFIN) Share Price

Simply Wall St

If you own shares in First Financial Bankshares, Inc. (NASDAQ:FFIN) 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. 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 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. 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.

View our latest analysis for First Financial Bankshares

What FFIN's beta value tells investors

Zooming in on First Financial Bankshares, we see it has a five year beta of 1.17. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, First Financial Bankshares shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 First Financial Bankshares fares in that regard, below.

NasdaqGS:FFIN Income Statement, December 31st 2019
NasdaqGS:FFIN Income Statement, December 31st 2019

How does FFIN's size impact its beta?

First Financial Bankshares is a fairly large company. It has a market capitalisation of US$4.8b, which means it is probably on the radar of most 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 First Financial Bankshares 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 First Financial Bankshares’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 FFIN’s future growth? Take a look at our free research report of analyst consensus for FFIN’s outlook.

  2. Past Track Record: Has FFIN 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 FFIN's historicals for more clarity.

  3. Other Interesting Stocks: It's worth checking to see how FFIN 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.