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Anyone researching Silgan Holdings Inc. (NASDAQ:SLGN) 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 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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 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.
What does SLGN’s beta value mean to investors?
Looking at the last five years, Silgan Holdings has a beta of 0.83. The fact that this is well below 1 indicates that its share price movements haven’t historically been very sensitive to overall market volatility. This suggests that including it in your portfolio will reduce volatility arising from broader market movements, assuming your portfolio’s weighted average beta is higher than 0.83. 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 Silgan Holdings fares in that regard, below.
Does SLGN’s size influence the expected beta?
With a market capitalisation of US$3.3b, Silgan Holdings is a pretty big company, even by global standards. It is quite likely well known to very many investors. When large companies like this one have a low beta value, there is usually some other factor that is having an outsized impact on the share price. For example, a business with significant fixed regulated assets might earn a reasonably predictable return, regardless of broader macroeconomic factors. Alternatively, lumpy earnings might mean minimal share price correlation with the broader market.
What this means for you:
One potential advantage of owning low beta stocks like Silgan Holdings is that your overall portfolio won’t be too sensitive to overall market movements. However, this can be a blessing or a curse, depending on what’s happening in the broader market. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Silgan Holdings’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for SLGN’s future growth? Take a look at our free research report of analyst consensus for SLGN’s outlook.
- Past Track Record: Has SLGN 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 SLGN’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how SLGN measures up against other companies on valuation. You could start with this free list of prospective options.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.