Yahoo Finance What You Must Know About Proto Labs, Inc.'s (NYSE:PRLB) Beta Value
Anyone researching Proto Labs, Inc. (NYSE:PRLB) might want to consider the historical volatility of the share price. 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 Proto Labs
What does PRLB's beta value mean to investors?
Zooming in on Proto Labs, we see it has a five year beta of 1.63. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, Proto Labs shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 Proto Labs's revenue and earnings in the image below.
Does PRLB's size influence the expected beta?
With a market capitalisation of US$2.7b, Proto Labs is a pretty big company, even by global standards. It is quite likely well known to very many 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 Proto Labs 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 PRLB is a good investment for you, we also need to consider important company-specific fundamentals such as Proto Labs’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 PRLB’s future growth? Take a look at our free research report of analyst consensus for PRLB’s outlook.
Past Track Record: Has PRLB 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 PRLB's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how PRLB measures up against other companies on valuation. You could start with this free list of prospective options.
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