money Does Rite Aid Corporation (NYSE:RAD) Have A Particularly Volatile Share Price?
If you own shares in Rite Aid Corporation (NYSE:RAD) 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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 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 Rite Aid
What we can learn from RAD's beta value
Zooming in on Rite Aid, we see it has a five year beta of 1.92. 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, Rite Aid shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Beta is worth considering, but it's also important to consider whether Rite Aid is growing earnings and revenue. You can take a look for yourself, below.
How does RAD's size impact its beta?
With a market capitalisation of US$784m, Rite Aid is a small cap stock. However, it is big enough to catch the attention of professional investors. It's not particularly surprising that it has a higher beta than the overall market. That's because it takes less money to influence the share price of a smaller company, than a bigger company.
What this means for you:
Beta only tells us that the Rite Aid share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. In order to fully understand whether RAD is a good investment for you, we also need to consider important company-specific fundamentals such as Rite Aid’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for RAD’s future growth? Take a look at our free research report of analyst consensus for RAD’s outlook.
Past Track Record: Has RAD 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 RAD's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how RAD 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.
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