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One Thing To Remember About The Pennsylvania Real Estate Investment Trust (NYSE:PEI) Share Price

Simply Wall St

If you're interested in Pennsylvania Real Estate Investment Trust (NYSE:PEI), 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. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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 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 Pennsylvania Real Estate Investment Trust

What we can learn from PEI's beta value

Given that it has a beta of 1.23, we can surmise that the Pennsylvania Real Estate Investment Trust share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Pennsylvania Real Estate Investment Trust shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Pennsylvania Real Estate Investment Trust's revenue and earnings in the image below.

NYSE:PEI Income Statement, November 12th 2019

Does PEI's size influence the expected beta?

Pennsylvania Real Estate Investment Trust is a rather small company. It has a market capitalisation of US$459m, which means it is probably under the radar of most investors. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.

What this means for you:

Since Pennsylvania Real Estate Investment Trust 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 Pennsylvania Real Estate Investment Trust’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 PEI’s future growth? Take a look at our free research report of analyst consensus for PEI’s outlook.
  2. Past Track Record: Has PEI 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 PEI's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how PEI 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.