How STORE Capital Corporation (NYSE:STOR) Can Impact Your Portfolio Volatility

If you’re interested in STORE Capital Corporation (NYSE:STOR), 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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. 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.

View our latest analysis for STORE Capital

What we can learn from STOR’s beta value

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. Beta is worth considering, but it’s also important to consider whether STORE Capital is growing earnings and revenue. You can take a look for yourself, below.

NYSE:STOR Income Statement April 29th 2020
NYSE:STOR Income Statement April 29th 2020

Does STOR’s size influence the expected beta?

STORE Capital is a reasonably big company, with a market capitalisation of US$4.4b. Most companies this size are actively traded with decent volumes of shares changing hands each day. 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:

It is probable that there is a link between the share price of STORE Capital and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that’s your game, metrics such as revenue, earnings and cash flow will be more useful. In order to fully understand whether STOR is a good investment for you, we also need to consider important company-specific fundamentals such as STORE Capital’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 STOR’s future growth? Take a look at our free research report of analyst consensus for STOR’s outlook.
  2. Past Track Record: Has STOR 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 STOR’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how STOR 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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