Before You Buy Aberdeen International Inc (TSE:AAB), Consider Its Volatility

If you’re interested in Aberdeen International Inc (TSE:AAB), 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. 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

See our latest analysis for Aberdeen International

What does AAB’s beta value mean to investors?

Given that it has a beta of 2, we can surmise that the Aberdeen International share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Aberdeen International are likely to rise strongly in times of greed, but sell off in times of fear. 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 Aberdeen International fares in that regard, below.

TSX:AAB Income Statement Export November 27th 18
TSX:AAB Income Statement Export November 27th 18

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

Aberdeen International is a rather small company. It has a market capitalisation of CA$6.2m, which means it is probably under the radar of most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Since Aberdeen International 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 AAB is a good investment for you, we also need to consider important company-specific fundamentals such as Aberdeen International’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 AAB’s future growth? Take a look at our free research report of analyst consensus for AAB’s outlook.
  2. Past Track Record: Has AAB 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 AAB’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how AAB 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.