Does The NetScout Systems, Inc. (NASDAQ:NTCT) Share Price Tend To Follow The Market?

If you’re interested in NetScout Systems, Inc. (NASDAQ:NTCT), 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. 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 type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the 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.

View our latest analysis for NetScout Systems

What NTCT’s beta value tells investors

Zooming in on NetScout Systems, we see it has a five year beta of 1.32. 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, NetScout Systems shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 NetScout Systems’s revenue and earnings in the image below.

NasdaqGS:NTCT Income Statement, July 31st 2019
NasdaqGS:NTCT Income Statement, July 31st 2019

Could NTCT’s size cause it to be more volatile?

NetScout Systems is a small company, but not tiny and little known. It has a market capitalisation of US$2.0b, 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:

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