What You Must Know About Speedway Motorsports Inc’s (NYSE:TRK) Market Risks
If you’re interested in Speedway Motorsports Inc (NYSE:TRK), 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
Check out our latest analysis for Speedway Motorsports
What TRK’s beta value tells investors
As it happens, Speedway Motorsports has a five year beta of 0.99. This is fairly close to 1, so the stock has historically shown a somewhat similar level of volatility as the market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won’t be particularly sensitive to it. Beta is worth considering, but it’s also important to consider whether Speedway Motorsports is growing earnings and revenue. You can take a look for yourself, below.
Could TRK’s size cause it to be more volatile?
Speedway Motorsports is a small cap stock with a market capitalisation of US$718.6m. Most companies this size are actively traded. Small companies often have a high beta value because the stock price can move on relatively low capital flows. So it’s interesting to note that this stock historically has a beta value quite close to one.
What this means for you:
It is probable that there is a link between the share price of Speedway Motorsports and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that’s your game, metrics such as revenue, earnings and cash flow will be more useful. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Speedway Motorsports’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 TRK’s future growth? Take a look at our free research report of analyst consensus for TRK’s outlook.
Past Track Record: Has TRK 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 TRK’s historicals for more clarity.
Other Interesting Stocks: It’s worth checking to see how TRK measures up against other companies on valuation. You could start with this free list of prospective options.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.