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What Kind Of Share Price Volatility Should You Expect For Targa Resources Corp. (NYSE:TRGP)?

If you're interested in Targa Resources Corp. (NYSE:TRGP), 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. 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 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 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.

See our latest analysis for Targa Resources

What we can learn from TRGP's beta value

Given that it has a beta of 1.60, we can surmise that the Targa Resources share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Targa Resources shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 Targa Resources fares in that regard, below.

NYSE:TRGP Income Statement April 2nd 2020
NYSE:TRGP Income Statement April 2nd 2020

Does TRGP's size influence the expected beta?

With a market capitalisation of US$1.4b, Targa Resources is a small cap stock. However, it is big enough to catch the attention of professional 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 Targa Resources tends to move 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Targa Resources’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

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  1. Future Outlook: What are well-informed industry analysts predicting for TRGP’s future growth? Take a look at our free research report of analyst consensus for TRGP’s outlook.

  2. Past Track Record: Has TRGP 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 TRGP's historicals for more clarity.

  3. Other Interesting Stocks: It's worth checking to see how TRGP 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.