American Eagle Outfitters, Inc. (NYSE:AEO) and Merck & Co., Inc. (NYSE:MRK) needs to be adopt little strategic shift, their beta stands at 1.06 and 0.87 respectively, which is intimating active (short-term) investors. Beta is a gauge of systematic risk, which is most important measure of risk or volatility of a stock. Always a financer wondering why his stocks are fluctuating ups and down as compare to overall market does not, beta helps to answer this question.
It is important to learn the beta of a stock ahead of investing in order to structure a portfolio with risk level that is acceptable to an investor. Belongings a portfolio with very high beta stocks may result in outsized gains, but it can also lead to disaster. During the height of the dot-com bubble in 2000 many start up internet stocks with very high betas were soaring in price only to subsequently collapse in value. An investor looking to avoid high risk investments would contain avoided speculative stocks during dot-com bubble based on beta measurements.
Once the concept of beta is understood, an investor can intuitively determine whether or not a particular stock has a high or low beta. For example, an established blue chip company in a mature industry with stable earnings will most likely have a much lower beta compared to a start up Biotechnology Company.
In recent trade, American Eagle Outfitters, Inc. (NYSE:AEO) declared the surged of 0.70% and finalized at $11.50 with the total traded volume of 8.62 Million shares. Beta factor for AEO was recorded as 1.06. A beta of 1.0 indicates that the stock’s price will move in lock-step with the market. A beta of less than 1 indicates the stock will be less volatile than the market, and correspondingly, a beta of more than 1 indicates the stock’s price will be more volatile than the market. In the trailing twelve months, gross profit margin was 37.30% and net profit margin of the company was 8.50%. The stock showed surged performance of 5.99% in last week and it surged about -27.22% in last quarter.
Merck & Co., Inc. (NYSE:MRK) slightly down during the previous trading session. The company noted the recent trading activity with the slightly down of -0.18% and closed at $64.92. The stock has 2740.22 shares outstanding while 75.80% shares of the company were owned by institutional investors. In the profitability analysis, the company has gross profit margin of 67.70% while net profit margin was at 14.40%. Beta value of the company was 0.87. Conversely, most high-tech, Nasdaq-based stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk. Giving some intention to the performance of firm, its weekly performance was 1.79% and month’s performance was calculated as 3.74%. And MRK has Average True Range for 14 days of 0.74.