How Corporación Empresarial de Materiales de Construcción, S.A. (BME:CMC) Can Impact Your Portfolio Volatility

Anyone researching Corporación Empresarial de Materiales de Construcción, S.A. (BME:CMC) might want to consider the historical volatility of the share price. 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 sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all 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 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 Corporación Empresarial de Materiales de Construcción

What we can learn from CMC’s beta value

Given that it has a beta of 1.69, we can surmise that the Corporación Empresarial de Materiales de Construcción share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Corporación Empresarial de Materiales de Construcción shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. 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 Corporación Empresarial de Materiales de Construcción fares in that regard, below.

BME:CMC Income Statement, September 29th 2019
BME:CMC Income Statement, September 29th 2019

Could CMC’s size cause it to be more volatile?

With a market capitalisation of €30m, Corporación Empresarial de Materiales de Construcción is a very small company by global standards. It is quite likely to be unknown to most investors. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.

What this means for you:

Beta only tells us that the Corporación Empresarial de Materiales de Construcción share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there’s plenty more to learn. In order to fully understand whether CMC is a good investment for you, we also need to consider important company-specific fundamentals such as Corporación Empresarial de Materiales de Construcción’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Financial Health: Are CMC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has CMC 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 CMC’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.

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. Thank you for reading.