Before You Buy Houlihan Lokey, Inc. (NYSE:HLI), Consider Its Volatility
If you're interested in Houlihan Lokey, Inc. (NYSE:HLI), 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. 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 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 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.
View our latest analysis for Houlihan Lokey
What does HLI's beta value mean to investors?
Given this level of beta, if the future looks like the past, we could therefore consider it likely that the stock price will experience share price volatility that is roughly similar to the overall market. Beta is worth considering, but it's also important to consider whether Houlihan Lokey is growing earnings and revenue. You can take a look for yourself, below.
Could HLI's size cause it to be more volatile?
With a market capitalisation of US$3.4b, Houlihan Lokey is a pretty big company, even by global standards. It is quite likely well known to very many investors. We shouldn't be surprised to see a large company like this with a beta value quite close to the market average. Large companies often move roughly in line with the market. In part, that's because there are fewer individual events that are signficant enough to markedly change the value of the stock (compared to small companies, at least).
What this means for you:
It is probable that there is a link between the share price of Houlihan Lokey 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 HLI is a good investment for you, we also need to consider important company-specific fundamentals such as Houlihan Lokey’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 HLI’s future growth? Take a look at our free research report of analyst consensus for HLI’s outlook.
Past Track Record: Has HLI 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 HLI's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how HLI 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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