If you’re interested in ReWalk Robotics Ltd. ( NASDAQ:RWLK ), 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. 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 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 are more sensitive to general market forces than others. 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.
What we can learn from RWLK’s beta value
Given that it has a beta of 1.8, we can surmise that the ReWalk Robotics share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that ReWalk Robotics shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see ReWalk Robotics’s revenue and earnings in the image below.
How does RWLK’s size impact its beta?
ReWalk Robotics is a rather small company. It has a market capitalisation of US$22m, 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 ReWalk Robotics 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 ReWalk Robotics’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 RWLK’s future growth? Take a look at our free research report of analyst consensus for RWLK’s outlook.
- Past Track Record : Has RWLK 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 RWLK’s historicals for more clarity.
- Other Interesting Stocks : It’s worth checking to see how RWLK measures up against other companies on valuation. You could start with this free list of prospective options .
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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.