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One Thing To Remember About The Merit Medical Systems, Inc. (NASDAQ:MMSI) Share Price

Simply Wall St

If you're interested in Merit Medical Systems, Inc. (NASDAQ:MMSI), 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. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks on the market.

Some stocks mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that 'Volatility is far from synonymous with risk', beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is 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.

Check out our latest analysis for Merit Medical Systems

What MMSI's beta value tells investors

As it happens, Merit Medical Systems has a five year beta of 1.06. This is fairly close to 1, so the stock has historically shown a somewhat similar level of volatility as the market. While history does not always repeat, this may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. Beta is worth considering, but it's also important to consider whether Merit Medical Systems is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:MMSI Income Statement, October 21st 2019

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

With a market capitalisation of US$1.7b, Merit Medical Systems is a small cap stock. However, it is big enough to catch the attention of professional investors. Small companies often have a high beta value because the stock price can move on relatively low capital flows. So it's interesting to note that this stock historically has a beta value quite close to one.

What this means for you:

Since Merit Medical Systems has a beta close to one, it will probably show a positive return when the market is moving up, based on history. If you're trying to generate better returns than the market, it would be worth thinking about other metrics such as cashflows, dividends and revenue growth might be a more useful guide to the future. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Merit Medical Systems’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 MMSI’s future growth? Take a look at our free research report of analyst consensus for MMSI’s outlook.
  2. Past Track Record: Has MMSI 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 MMSI's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how MMSI 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.