Anyone researching Perficient, Inc. (NASDAQ:PRFT) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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 does PRFT’s beta value mean to investors?
Using history as a guide, we might surmise that the share price is likely to be influenced by market volatility going forward but it probably won’t be particularly sensitive to it. 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 Perficient’s revenue and earnings in the image below.
Does PRFT’s size influence the expected beta?
Perficient is a small company, but not tiny and little known. It has a market capitalisation of US$1.2b, which means it would be on the radar of intstitutional investors.
What this means for you:
Since Perficient 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. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Perficient’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 PRFT’s future growth? Take a look at our free research report of analyst consensus for PRFT’s outlook.
- Past Track Record: Has PRFT 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 PRFT’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how PRFT 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 email@example.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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