Anyone researching Informatics Education Ltd (SGX:BOU) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. 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 are more sensitive to general market forces than others. 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.
See our latest analysis for Informatics Education
What BOU's beta value tells investors
Given that it has a beta of 1.55, we can surmise that the Informatics Education share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Informatics Education 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 Informatics Education is growing earnings and revenue. You can take a look for yourself, below.
Does BOU's size influence the expected beta?
Informatics Education is a noticeably small company, with a market capitalisation of S$7.6m. Most companies this size are not always actively traded. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.
What this means for you:
Since Informatics Education 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 BOU is a good investment for you, we also need to consider important company-specific fundamentals such as Informatics Education’s financial health and performance track record. I urge you to continue your research by taking a look at the following: