Anyone researching Pebblebrook Hotel Trust (NYSE:PEB) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.
Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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 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.
What we can learn from PEB's beta value
Zooming in on Pebblebrook Hotel Trust, we see it has a five year beta of 1.36. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If the past is any guide, we would expect that Pebblebrook Hotel Trust shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it's also important to consider whether Pebblebrook Hotel Trust is growing earnings and revenue. You can take a look for yourself, below.
Could PEB's size cause it to be more volatile?
Pebblebrook Hotel Trust is a fairly large company. It has a market capitalisation of US$4.0b, which means it is probably on the radar of most investors. It takes deep pocketed investors to influence the share price of a large company, so it's a little unusual to see companies this size with high beta values. It may be that that this company is more heavily impacted by broader economic factors than most.
What this means for you:
Since Pebblebrook Hotel Trust tends to moves up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. 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:
- 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.
- 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.
- 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.
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