What Kind Of Share Price Volatility Should You Expect For Medallion Financial Corp. (NASDAQ:MFIN)?

If you own shares in Medallion Financial Corp. (NASDAQ:MFIN) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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.

View our latest analysis for Medallion Financial

What we can learn from MFIN’s beta value

Looking at the last five years, Medallion Financial has a beta of 1.56. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If this beta value holds true in the future, Medallion Financial 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 Medallion Financial is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:MFIN Income Statement, January 10th 2020
NasdaqGS:MFIN Income Statement, January 10th 2020

How does MFIN’s size impact its beta?

Medallion Financial is a noticeably small company, with a market capitalisation of US$169m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Since Medallion Financial 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. In order to fully understand whether MFIN is a good investment for you, we also need to consider important company-specific fundamentals such as Medallion Financial’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 MFIN’s future growth? Take a look at our free research report of analyst consensus for MFIN’s outlook.
  2. Past Track Record: Has MFIN 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 MFIN’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how MFIN 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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