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If you’re interested in Grupo Ezentis SA (BME:EZE), 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. 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 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.
Check out our latest analysis for Grupo Ezentis
What does EZE’s beta value mean to investors?
Given that it has a beta of 1.36, we can surmise that the Grupo Ezentis share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Grupo Ezentis shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 Grupo Ezentis’s revenue and earnings in the image below.
Does EZE’s size influence the expected beta?
Grupo Ezentis is a noticeably small company, with a market capitalisation of US$219m. 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 Grupo Ezentis 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 EZE is a good investment for you, we also need to consider important company-specific fundamentals such as Grupo Ezentis’s financial health and performance track record. I highly recommend you dive deeper by considering the following: