Before You Buy Barnwell Industries, Inc. (NYSEMKT:BRN), Consider Its Volatility

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Anyone researching Barnwell Industries, Inc. (NYSEMKT:BRN) 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. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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. 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.

Check out our latest analysis for Barnwell Industries

What does BRN’s beta value mean to investors?

Given that it has a beta of 1.26, we can surmise that the Barnwell Industries share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Barnwell Industries are likely to rise strongly in times of greed, but sell off in times of fear. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Barnwell Industries’s revenue and earnings in the image below.

AMEX:BRN Income Statement, July 11th 2019
AMEX:BRN Income Statement, July 11th 2019

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

Barnwell Industries is a noticeably small company, with a market capitalisation of US$7.8m. 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:

Since Barnwell Industries has a reasonably high beta, it’s worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. In order to fully understand whether BRN is a good investment for you, we also need to consider important company-specific fundamentals such as Barnwell Industries’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 BRN’s future growth? Take a look at our free research report of analyst consensus for BRN’s outlook.
  2. Past Track Record: Has BRN 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 BRN’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how BRN measures up against other companies on valuation. You could start with this free list of prospective options.

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.

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. Thank you for reading.