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Before You Buy The Gorman-Rupp Company (NYSE:GRC), Consider Its Volatility

Brent Freeman

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If you’re interested in The Gorman-Rupp Company ( NYSE:GRC ), 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. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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 Gorman-Rupp

What GRC’s beta value tells investors

Gorman-Rupp has a five-year beta of 0.93. This is reasonably close to the market beta of 1, so the stock has in the past displayed similar levels of volatility to the overall 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. Beta is worth considering, but it’s also important to consider whether Gorman-Rupp is growing earnings and revenue. You can take a look for yourself, below.

NYSE:GRC Income Statement Export February 11th 19

Does GRC’s size influence the expected beta?

With a market capitalisation of US$863m, Gorman-Rupp is a small cap stock. However, it is big enough to catch the attention of professional investors. Small companies often have a high beta value because the stock price can move on relatively low capital flows. So it’s interesting to note that this stock historically has a beta value quite close to one.

What this means for you:

It is probable that there is a link between the share price of Gorman-Rupp and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that’s your game, metrics such as revenue, earnings and cash flow will be more useful. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Gorman-Rupp’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 GRC’s future growth? Take a look at our free research report of analyst consensus for GRC’s outlook.
  2. Past Track Record : Has GRC 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 GRC’s historicals for more clarity.
  3. Other Interesting Stocks : It’s worth checking to see how GRC 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 .