If you own shares in SW Umwelttechnik Stoiser & Wolschner AG (VIE:SWUT) 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that ‘Volatility is far from synonymous with risk’, beta is still a useful factor to consider. To make good use of it you must first know 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.
View our latest analysis for SW Umwelttechnik Stoiser & Wolschner
What SWUT’s beta value tells investors
Zooming in on SW Umwelttechnik Stoiser & Wolschner, we see it has a five year beta of 0.87. This is below 1, so historically its share price has been rather independent from the market. This suggests that including it in your portfolio will reduce volatility arising from broader market movements, assuming your portfolio’s weighted average beta is higher than 0.87. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see SW Umwelttechnik Stoiser & Wolschner’s revenue and earnings in the image below.
Does SWUT’s size influence the expected beta?
SW Umwelttechnik Stoiser & Wolschner is a noticeably small company, with a market capitalisation of €7.8m. Most companies this size are not always actively traded. Very small companies often have a low beta value because their share prices are not well correlated with market volatility. This could be because the price is reacting to company specific events. Alternatively, the shares may not be actively traded.
What this means for you:
Since SW Umwelttechnik Stoiser & Wolschner is not heavily influenced by market moves, its share price is probably far more dependend on company specific developments. It could pay to take a closer look at metrics such as revenue growth, earnings growth, and debt. In order to fully understand whether SWUT is a good investment for you, we also need to consider important company-specific fundamentals such as SW Umwelttechnik Stoiser & Wolschner’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 SWUT’s future growth? Take a look at our free research report of analyst consensus for SWUT’s outlook.
- Past Track Record: Has SWUT 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 SWUT’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how SWUT measures up against other companies on valuation. You could start with this free list of prospective options.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.