If you’re interested in Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX), 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 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 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.
What MDRX’s beta value tells investors
Given that it has a beta of 1.37, we can surmise that the Allscripts Healthcare Solutions share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Allscripts Healthcare Solutions 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 Allscripts Healthcare Solutions is growing earnings and revenue. You can take a look for yourself, below.
Does MDRX’s size influence the expected beta?
Allscripts Healthcare Solutions is a small company, but not tiny and little known. It has a market capitalisation of US$1.7b, which means it would be on the radar of intstitutional investors. It is quite common to see a small-cap stock with a beta greater than one. In part, that’s because relatively few investors can influence the price of a smaller company, compared to a large company.
What this means for you:
Beta only tells us that the Allscripts Healthcare Solutions 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 MDRX is a good investment for you, we also need to consider important company-specific fundamentals such as Allscripts Healthcare Solutions’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 MDRX’s future growth? Take a look at our free research report of analyst consensus for MDRX’s outlook.
- Past Track Record: Has MDRX 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 MDRX’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how MDRX measures up against other companies on valuation. You could start with this free list of prospective options.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.