What Kind Of Share Price Volatility Should You Expect For Pixelworks Inc (NASDAQ:PXLW)?

If you’re interested in Pixelworks Inc (NASDAQ:PXLW), 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. 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.

View our latest analysis for Pixelworks

What we can learn from PXLW’s beta value

Zooming in on Pixelworks, we see it has a five year beta of 1.14. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market the market. Based on this history, investors should be aware that Pixelworks are likely to rise strongly in times of greed, but sell off in times of fear. 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 Pixelworks fares in that regard, below.

NasdaqGM:PXLW Income Statement Export November 30th 18
NasdaqGM:PXLW Income Statement Export November 30th 18

How does PXLW’s size impact its beta?

Pixelworks is a rather small company. It has a market capitalisation of US$142m, which means it is probably under the radar of most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Since Pixelworks has a reasonably high beta, it’s worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Pixelworks’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for PXLW’s future growth? Take a look at our free research report of analyst consensus for PXLW’s outlook.
  2. Past Track Record: Has PXLW 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 PXLW’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how PXLW 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.