How Does International Battery Metals Ltd (CNSX:IBAT) Affect Your Portfolio Returns?

Anyone researching International Battery Metals Ltd (CNSX:IBAT) 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. 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 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 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 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.

View our latest analysis for International Battery Metals

What we can learn from IBAT’s beta value

With a beta of 1.04, (which is quite close to 1) the share price of International Battery Metals has historically been about as voltile as the broader market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won’t be particularly sensitive to it. Beta is worth considering, but it’s also important to consider whether International Battery Metals is growing earnings and revenue. You can take a look for yourself, below.

CNSX:IBAT Income Statement Export August 22nd 18
CNSX:IBAT Income Statement Export August 22nd 18

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

International Battery Metals is a rather small company. It has a market capitalisation of CA$8.53m, which means it is probably under the radar of most investors. Companies this small are usually more volatile than the market, whether or not that volatility is correlated. Therefore, it’s a bit surprising to see that this stock has a beta value so close to the overall market.

What this means for you:

International Battery Metals has a beta value quite close to that of the overall market. That doesn’t tell us much on its own, so it is probably worth considering whether the company is growing, if you’re looking for stocks that will go up more than the overall market. In order to fully understand whether IBAT is a good investment for you, we also need to consider important company-specific fundamentals such as International Battery Metals’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Financial Health: Are IBAT’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 IBAT 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 IBAT’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.

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.