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One Thing To Remember About The Q2 Holdings, Inc. (NYSE:QTWO) Share Price

If you own shares in Q2 Holdings, Inc. (NYSE:QTWO) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that 'Volatility is far from synonymous with risk', beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is 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 Q2 Holdings

What does QTWO's beta value mean to investors?

Given that it has a beta of 1.23, we can surmise that the Q2 Holdings share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Q2 Holdings shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. 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 Q2 Holdings's revenue and earnings in the image below.

NYSE:QTWO Income Statement, December 20th 2019
NYSE:QTWO Income Statement, December 20th 2019

Could QTWO's size cause it to be more volatile?

With a market capitalisation of US$3.8b, Q2 Holdings is a pretty big company, even by global standards. It is quite likely well known to very many investors. It takes deep pocketed investors to influence the share price of a large company, so it's a little unusual to see companies this size with high beta values. It may be that that this company is more heavily impacted by broader economic factors than most.

What this means for you:

Since Q2 Holdings 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Q2 Holdings’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

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

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

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