Yahoo Finance Should You Be Concerned About MACOM Technology Solutions Holdings, Inc.'s (NASDAQ:MTSI) Historical Volatility?
If you own shares in MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) 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. 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 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. 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.
View our latest analysis for MACOM Technology Solutions Holdings
What does MTSI's beta value mean to investors?
Zooming in on MACOM Technology Solutions Holdings, we see it has a five year beta of 1.91. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If the past is any guide, we would expect that MACOM Technology Solutions Holdings 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 MACOM Technology Solutions Holdings's revenue and earnings in the image below.
Could MTSI's size cause it to be more volatile?
MACOM Technology Solutions Holdings is a small company, but not tiny and little known. It has a market capitalisation of US$1.9b, which means it would be on the radar of intstitutional investors. It's not particularly surprising that it has a higher beta than the overall market. That's because it takes less money to influence the share price of a smaller company, than a bigger company.
What this means for you:
Since MACOM Technology Solutions Holdings 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 MTSI is a good investment for you, we also need to consider important company-specific fundamentals such as MACOM Technology Solutions Holdings’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 MTSI’s future growth? Take a look at our free research report of analyst consensus for MTSI’s outlook.
Past Track Record: Has MTSI 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 MTSI's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how MTSI measures up against other companies on valuation. You could start with this free list of prospective options.
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.
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