Capstar Financial Holdings, Inc. (NASDAQ:CSTR): What Does Its Beta Value Mean For Your Portfolio?

If you’re interested in Capstar Financial Holdings, Inc. (NASDAQ:CSTR), 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. 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 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 Capstar Financial Holdings

What CSTR’s beta value tells investors

Using history as a guide, we might surmise that the share price is likely to be influenced by market volatility going forward but it probably won’t be particularly sensitive to it. Beta is worth considering, but it’s also important to consider whether Capstar Financial Holdings is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:CSTR Income Statement, February 16th 2020
NasdaqGS:CSTR Income Statement, February 16th 2020

Does CSTR’s size influence the expected beta?

With a market capitalisation of US$279m, Capstar Financial Holdings is a very small company by global standards. It is quite likely to be unknown to most investors. It doesn’t take much money to really move the share price of a company as small as this one. That makes it somewhat unusual that it has a beta value so close to the overall market.

What this means for you:

It is probable that there is a link between the share price of Capstar Financial Holdings and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that’s your game, metrics such as revenue, earnings and cash flow will be more useful. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Capstar Financial Holdings’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

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