U.S. Markets close in 4 hrs 49 mins

Should You Be Concerned About SPX Corporation's (NYSE:SPXC) Historical Volatility?

Simply Wall St

If you're interested in SPX Corporation ( NYSE:SPXC ), 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. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

Check out our latest analysis for SPX

What SPXC's beta value tells investors

Given that it has a beta of 1.75, we can surmise that the SPX share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that SPX shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it's also important to consider whether SPX is growing earnings and revenue. You can take a look for yourself, below.

NYSE:SPXC Income Statement, August 23rd 2019

Could SPXC's size cause it to be more volatile?

With a market capitalisation of US$1.7b, SPX is a small cap stock. However, it is big enough to catch the attention of professional investors. It is quite common to see a small-cap stock with a beta greater than one. In part, that's because relatively few investors can influence the price of a smaller company, compared to a large company.

What this means for you:

Since SPX 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. In order to fully understand whether SPXC is a good investment for you, we also need to consider important company-specific fundamentals such as SPX’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 SPXC’s future growth? Take a look at our free research report of analyst consensus for SPXC’s outlook.
  2. Past Track Record : Has SPXC 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 SPXC's historicals for more clarity.
  3. Other Interesting Stocks : It's worth checking to see how SPXC 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.