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If you’re interested in Björn Borg AB (publ) (STO:BORG), 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. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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. 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 Björn Borg
What does BORG’s beta value mean to investors?
Given that it has a beta of 1.16, we can surmise that the Björn Borg share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Björn Borg 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 Björn Borg is growing earnings and revenue. You can take a look for yourself, below.
Could BORG’s size cause it to be more volatile?
Björn Borg is a noticeably small company, with a market capitalisation of kr548m. Most companies this size are not always actively traded. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.
What this means for you:
Since Björn Borg 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 BORG is a good investment for you, we also need to consider important company-specific fundamentals such as Björn Borg’s financial health and performance track record. I urge you to continue your research by taking a look at the following: