What You Must Know About GreenPower Motor Company Inc.'s (CVE:GPV) Beta Value

If you own shares in GreenPower Motor Company Inc. (CVE:GPV) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 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 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 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 GreenPower Motor

What GPV's beta value tells investors

Given that it has a beta of 1.69, we can surmise that the GreenPower Motor share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that GreenPower Motor 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 GreenPower Motor fares in that regard, below.

Does GPV's size influence the expected beta?

GreenPower Motor is a noticeably small company, with a market capitalisation of CA$41m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Beta only tells us that the GreenPower Motor 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 GPV is a good investment for you, we also need to consider important company-specific fundamentals such as GreenPower Motor’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

1. Future Outlook: What are well-informed industry analysts predicting for GPV’s future growth? Take a look at our free research report of analyst consensus for GPV’s outlook.
2. Past Track Record: Has GPV 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 GPV's historicals for more clarity.
3. Other Interesting Stocks: It's worth checking to see how GPV 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.