If you own shares in WSFS Financial Corporation ( NASDAQ:WSFS ) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is 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 WSFS's beta value
Given that it has a beta of 1.11, we can surmise that the WSFS Financial share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that WSFS Financial shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. 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 WSFS Financial fares in that regard, below.
Does WSFS's size influence the expected beta?
WSFS Financial is a reasonably big company, with a market capitalisation of US$2.4b. Most companies this size are actively traded with decent volumes of shares changing hands each day. 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 WSFS Financial 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 WSFS is a good investment for you, we also need to consider important company-specific fundamentals such as WSFS Financial’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 WSFS’s future growth? Take a look at our free research report of analyst consensus for WSFS’s outlook.
- Past Track Record : Has WSFS 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 WSFS's historicals for more clarity.
- Other Interesting Stocks : It's worth checking to see how WSFS 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.