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Anyone researching Dilip Buildcon Limited (NSE:DBL) 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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 Dilip Buildcon
What DBL’s beta value tells investors
Given that it has a beta of 1.79, we can surmise that the Dilip Buildcon share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Dilip Buildcon shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it’s also important to consider whether Dilip Buildcon is growing earnings and revenue. You can take a look for yourself, below.
Could DBL’s size cause it to be more volatile?
Dilip Buildcon is a small company, but not tiny and little known. It has a market capitalisation of ₹55.6b, which means it would be on the radar of intstitutional investors. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.
What this means for you:
Since Dilip Buildcon 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 DBL is a good investment for you, we also need to consider important company-specific fundamentals such as Dilip Buildcon’s financial health and performance track record. I urge you to continue your research by taking a look at the following: