Anyone researching Intracom Constructions Societe Anonyme Technical and Steel Constructions (ATH:INKAT) 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 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 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
What does INKAT's beta value mean to investors?
Given that it has a beta of 1.5, we can surmise that the Intracom Constructions Societe Anonyme Technical and Steel Constructions share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Intracom Constructions Societe Anonyme Technical and Steel Constructions shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how Intracom Constructions Societe Anonyme Technical and Steel Constructions fares in that regard, below.
Does INKAT's size influence the expected beta?
Intracom Constructions Societe Anonyme Technical and Steel Constructions is a noticeably small company, with a market capitalisation of €62m. 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.