Yahoo Finance Does RLJ Lodging Trust (NYSE:RLJ) Have A High Beta?
Anyone researching RLJ Lodging Trust (NYSE:RLJ) 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 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 below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.
Check out our latest analysis for RLJ Lodging Trust
What does RLJ's beta value mean to investors?
Given that it has a beta of 1.29, we can surmise that the RLJ Lodging Trust share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that RLJ Lodging Trust are likely to rise strongly in times of greed, but sell off in times of fear. 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 RLJ Lodging Trust fares in that regard, below.
Does RLJ's size influence the expected beta?
RLJ Lodging Trust is a reasonably big company, with a market capitalisation of US$2.9b. 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 RLJ Lodging Trust 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 RLJ is a good investment for you, we also need to consider important company-specific fundamentals such as RLJ Lodging Trust’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 RLJ’s future growth? Take a look at our free research report of analyst consensus for RLJ’s outlook.
Past Track Record: Has RLJ 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 RLJ's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how RLJ 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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