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Anyone researching Chembio Diagnostics, Inc. (NASDAQ:CEMI) 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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.
What does CEMI’s beta value mean to investors?
Given that it has a beta of 1.81, we can surmise that the Chembio Diagnostics share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Chembio Diagnostics are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it’s also important to consider whether Chembio Diagnostics is growing earnings and revenue. You can take a look for yourself, below.
Could CEMI’s size cause it to be more volatile?
Chembio Diagnostics is a rather small company. It has a market capitalisation of US$116m, which means it is probably under the radar of most investors. 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 Chembio Diagnostics 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 CEMI is a good investment for you, we also need to consider important company-specific fundamentals such as Chembio Diagnostics’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for CEMI’s future growth? Take a look at our free research report of analyst consensus for CEMI’s outlook.
- Past Track Record: Has CEMI 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 CEMI’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how CEMI 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 email@example.com.