Anyone researching Axon Enterprise, Inc. (NASDAQ:AAXN) might want to consider the historical volatility of the share price. 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 other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.
Some stocks are more sensitive to general market forces than others. Beta can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said ‘volatility is far from synonymous with risk’ in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of 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.
What does AAXN’s beta value mean to investors?
Zooming in on Axon Enterprise, we see it has a five year beta of 0.88. This is below 1, so historically its share price has been rather independent from the market. This means that — if history is a guide — buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). Beta is worth considering, but it’s also important to consider whether Axon Enterprise is growing earnings and revenue. You can take a look for yourself, below.
How does AAXN’s size impact its beta?
Axon Enterprise is a fairly large company. It has a market capitalisation of US$3.7b, which means it is probably on the radar of most investors. It is a little unusual to see big companies like this trade on low beta values. Oftentimes there is some other clear influence on the share price, overshadowing market volatility.
What this means for you:
Since Axon Enterprise 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 AAXN is a good investment for you, we also need to consider important company-specific fundamentals such as Axon Enterprise’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for AAXN’s future growth? Take a look at our free research report of analyst consensus for AAXN’s outlook.
- Past Track Record: Has AAXN 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 AAXN’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how AAXN measures up against other companies on valuation. You could start with this free list of prospective options.
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If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.