Does Select Medical Holdings Corporation (NYSE:SEM) Have A Particularly Volatile Share Price?

If you’re interested in Select Medical Holdings Corporation (NYSE:SEM), 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.

Some stocks are more sensitive to general market forces than others. Beta can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said ‘volatility is far from synonymous with risk’ in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of 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 Select Medical Holdings

What we can learn from SEM’s beta value

Looking at the last five years, Select Medical Holdings has a beta of 1.47. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If the past is any guide, we would expect that Select Medical Holdings shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. 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 Select Medical Holdings fares in that regard, below.

NYSE:SEM Income Statement Export January 24th 19
NYSE:SEM Income Statement Export January 24th 19

Could SEM’s size cause it to be more volatile?

Select Medical Holdings is a small cap stock with a market capitalisation of US$2.0b. Most companies this size are actively traded. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.

What this means for you:

Beta only tells us that the Select Medical Holdings share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there’s plenty more to learn. In order to fully understand whether SEM is a good investment for you, we also need to consider important company-specific fundamentals such as Select Medical Holdings’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 SEM’s future growth? Take a look at our free research report of analyst consensus for SEM’s outlook.
  2. Past Track Record: Has SEM 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 SEM’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how SEM measures up against other companies on valuation. You could start with this free list of prospective options.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.