Anyone researching TRI Pointe Group, Inc. (NYSE:TPH) might want to consider the historical volatility of the share price. 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 other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
What does TPH’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. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how TRI Pointe Group fares in that regard, below.
Could TPH’s size cause it to be more volatile?
TRI Pointe Group is a fairly large company. It has a market capitalisation of US$2.2b, 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:
TRI Pointe Group has a beta value quite close to that of the overall market. That doesn’t tell us much on its own, so it is probably worth considering whether the company is growing, if you’re looking for stocks that will go up more than the overall market. In order to fully understand whether TPH is a good investment for you, we also need to consider important company-specific fundamentals such as TRI Pointe Group’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 TPH’s future growth? Take a look at our free research report of analyst consensus for TPH’s outlook.
- Past Track Record: Has TPH 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 TPH’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how TPH measures up against other companies on valuation. You could start with this free list of prospective options.
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