How Does Globus Medical, Inc. (NYSE:GMED) Affect Your Portfolio Volatility?

If you’re interested in Globus Medical, Inc. (NYSE:GMED), 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. 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 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 are more sensitive to general market forces than others. 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

Check out our latest analysis for Globus Medical

What does GMED’s beta value mean to investors?

While history does not always repeat, this level of beta may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. 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 Globus Medical’s revenue and earnings in the image below.

NYSE:GMED Income Statement April 28th 2020
NYSE:GMED Income Statement April 28th 2020

How does GMED’s size impact its beta?

Globus Medical is a fairly large company. It has a market capitalisation of US$4.6b, which means it is probably on the radar of most investors. We shouldn’t be surprised to see a large company like this with a beta value quite close to the market average. Large companies often move roughly in line with the market. In part, that’s because there are fewer individual events that are signficant enough to markedly change the value of the stock (compared to small companies, at least).

What this means for you:

Since Globus Medical has a beta close to one, it will probably show a positive return when the market is moving up, based on history. If you’re trying to generate better returns than the market, it would be worth thinking about other metrics such as cashflows, dividends and revenue growth might be a more useful guide to the future. In order to fully understand whether GMED is a good investment for you, we also need to consider important company-specific fundamentals such as Globus Medical’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 GMED’s future growth? Take a look at our free research report of analyst consensus for GMED’s outlook.
  2. Past Track Record: Has GMED 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 GMED’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how GMED 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.