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Anyone researching First BanCorp. ( NYSE:FBP ) 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. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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.
What FBP's beta value tells investors
Given that it has a beta of 1.56, we can surmise that the First BanCorp share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that First BanCorp are likely to rise strongly in times of greed, but sell off in times of fear. 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 First BanCorp's revenue and earnings in the image below.
Could FBP's size cause it to be more volatile?
First BanCorp is a fairly large company. It has a market capitalisation of US$2.1b, which means it is probably on the radar of most investors. It has a relatively high beta, suggesting it may be somehow leveraged to macroeconomic conditions. For example, it might be a high growth stock with lots of investors trading the shares. It's notable when large companies to have high beta values, because it usually takes substantial capital flows to move their share prices.
What this means for you:
Since First BanCorp tends to moves up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether FBP is a good investment for you, we also need to consider important company-specific fundamentals such as First BanCorp’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
- Future Outlook : What are well-informed industry analysts predicting for FBP’s future growth? Take a look at our free research report of analyst consensus for FBP’s outlook.
- Past Track Record : Has FBP 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 FBP's historicals for more clarity.
- Other Interesting Stocks : It's worth checking to see how FBP 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 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.