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Is Pebblebrook Hotel Trust (NYSE:PEB) A Volatile Stock?

Simply Wall St

Anyone researching Pebblebrook Hotel Trust (NYSE:PEB) might want to consider the historical volatility of the share price. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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 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 Pebblebrook Hotel Trust

What we can learn from PEB's beta value

Zooming in on Pebblebrook Hotel Trust, we see it has a five year beta of 1.76. 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, Pebblebrook Hotel Trust 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 Pebblebrook Hotel Trust fares in that regard, below.

NYSE:PEB Income Statement April 8th 2020

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

Pebblebrook Hotel Trust is a small cap stock with a market capitalisation of US$1.3b. Most companies this size are actively traded. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.

What this means for you:

Since Pebblebrook Hotel 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. In order to fully understand whether PEB is a good investment for you, we also need to consider important company-specific fundamentals such as Pebblebrook Hotel 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 PEB’s future growth? Take a look at our free research report of analyst consensus for PEB’s outlook.
  2. Past Track Record: Has PEB 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 PEB's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how PEB 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.