1st Source Corporation (NASDAQ:SRCE): What Does Its Beta Value Mean For Your Portfolio?
Anyone researching 1st Source Corporation (NASDAQ:SRCE) 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. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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.
See our latest analysis for 1st Source
What does SRCE’s beta value mean to investors?
1st Source has a five-year beta of 0.97. This is reasonably close to the market beta of 1, so the stock has in the past displayed similar levels of volatility to the overall market. While history does not always repeat, this may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. 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 1st Source’s revenue and earnings in the image below.
Does SRCE’s size influence the expected beta?
1st Source is a small cap stock with a market capitalisation of US$1.1b. Most companies this size are actively traded. It takes less capital to move the share price of small companies, and they are also more impacted by company specific events, so it’s a bit of a surprise that the beta is so close to the overall market.
What this means for you:
It is probable that there is a link between the share price of 1st Source 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. In order to fully understand whether SRCE is a good investment for you, we also need to consider important company-specific fundamentals such as 1st Source’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 SRCE’s future growth? Take a look at our free research report of analyst consensus for SRCE’s outlook.
Past Track Record: Has SRCE 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 SRCE’s historicals for more clarity.
Other Interesting Stocks: It’s worth checking to see how SRCE 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.
