Does Cheetah Mobile Inc. (NYSE:CMCM) Have A Particularly Volatile Share Price?

January 13, 2020

If you're interested in Cheetah Mobile Inc. (NYSE:CMCM), 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. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. 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. 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.

Check out our latest analysis for Cheetah Mobile

What does CMCM's beta value mean to investors?

Given that it has a beta of 1.77, we can surmise that the Cheetah Mobile share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Cheetah Mobile 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 Cheetah Mobile fares in that regard, below.

NYSE:CMCM Income Statement, January 14th 2020

Does CMCM's size influence the expected beta?

Cheetah Mobile is a small cap stock with a market capitalisation of US$554m. Most companies this size are actively traded. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.

What this means for you:

Since Cheetah Mobile 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. In order to fully understand whether CMCM is a good investment for you, we also need to consider important company-specific fundamentals such as Cheetah Mobile’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 CMCM’s future growth? Take a look at our free research report of analyst consensus for CMCM’s outlook.
Past Track Record: Has CMCM 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 CMCM's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how CMCM 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.

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About NYSE:CMCM

Cheetah Mobile

Provides internet services, artificial intelligence (AI), and other services in the People’s Republic of China, Hong Kong, Japan, and internationally.

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