Anyone researching Tutor Perini Corporation (NYSE:TPC) 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. 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. 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.
What does TPC’s beta value mean to investors?
Zooming in on Tutor Perini, we see it has a five year beta of 1.9. 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, Tutor Perini shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Beta is worth considering, but it’s also important to consider whether Tutor Perini is growing earnings and revenue. You can take a look for yourself, below.
Does TPC’s size influence the expected beta?
With a market capitalisation of US$614m, Tutor Perini is a small cap stock. However, it is big enough to catch the attention of professional 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 Tutor Perini 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. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Tutor Perini’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 TPC’s future growth? Take a look at our free research report of analyst consensus for TPC’s outlook.
- Past Track Record: Has TPC 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 TPC’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how TPC measures up against other companies on valuation. You could start with this free list of prospective options.
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