How Does Investing In Live Oak Bancshares, Inc. (NASDAQ:LOB) Impact The Volatility Of Your Portfolio?

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If you own shares in Live Oak Bancshares, Inc. (NASDAQ:LOB) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

Check out our latest analysis for Live Oak Bancshares

What does LOB’s beta value mean to investors?

While history does not always repeat, this level of beta may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. Beta is worth considering, but it’s also important to consider whether Live Oak Bancshares is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:LOB Income Statement, January 14th 2020

NasdaqGS:LOB Income Statement, January 14th 2020

NasdaqGS:LOB Income Statement, January 14th 2020

Does LOB’s size influence the expected beta?

With a market capitalisation of US$756m, Live Oak Bancshares is a small cap stock. However, it is big enough to catch the attention of professional investors.

What this means for you:

Live Oak Bancshares has a beta value quite close to that of the overall market. That doesn’t tell us much on its own, so it is probably worth considering whether the company is growing, if you’re looking for stocks that will go up more than the overall market. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Live Oak Bancshares’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for LOB’s future growth? Take a look at our free research report of analyst consensus for LOB’s outlook.
  2. Past Track Record: Has LOB 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 LOB’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how LOB 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.