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If you're interested in Stolt-Nielsen Limited (OB:SNI), 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. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks on the market.
Some stocks are more sensitive to general market forces than others. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that 'Volatility is far from synonymous with risk', beta is still a useful factor to consider. To make good use of it you must first know 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 Stolt-Nielsen
What we can learn from SNI's beta value
Zooming in on Stolt-Nielsen, we see it has a five year beta of 0.83. 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). 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 Stolt-Nielsen's revenue and earnings in the image below.
How does SNI's size impact its beta?
With a market capitalisation of øre6.1b, Stolt-Nielsen is a small cap stock. However, it is big enough to catch the attention of professional investors. Small companies can have a low beta value when company specific factors outweigh the influence of overall market volatility. That might be happening here.
What this means for you:
Since Stolt-Nielsen 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 SNI is a good investment for you, we also need to consider important company-specific fundamentals such as Stolt-Nielsen’s financial health and performance track record. I urge you to continue your research by taking a look at the following: