Should You Be Concerned About Foot Locker, Inc.’s (NYSE:FL) Historical Volatility?

Anyone researching Foot Locker, Inc. (NYSE:FL) 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. 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 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 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.

Check out our latest analysis for Foot Locker

What FL’s beta value tells investors

With a beta of 0.97, (which is quite close to 1) the share price of Foot Locker has historically been about as voltile as the broader market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility 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 Foot Locker fares in that regard, below.

NYSE:FL Income Statement, July 22nd 2019
NYSE:FL Income Statement, July 22nd 2019

How does FL’s size impact its beta?

Foot Locker is a reasonably big company, with a market capitalisation of US$4.6b. Most companies this size are actively traded with decent volumes of shares changing hands each day. It’s not overly surprising to see large companies with beta values reasonably close to the market average. After all, large companies make up a higher weighting of the index than do small companies.

What this means for you:

Since Foot Locker has a beta close to one, it will probably show a positive return when the market is moving up, based on history. If you’re trying to generate better returns than the market, it would be worth thinking about other metrics such as cashflows, dividends and revenue growth might be a more useful guide to the future. In order to fully understand whether FL is a good investment for you, we also need to consider important company-specific fundamentals such as Foot Locker’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 FL’s future growth? Take a look at our free research report of analyst consensus for FL’s outlook.
  2. Past Track Record: Has FL 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 FL’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how FL 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 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. Thank you for reading.