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Anyone researching Lai Sun Development Company Limited (HKG:488) 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 are more sensitive to general market forces than others. 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.
Check out our latest analysis for Lai Sun Development
What 488’s beta value tells investors
Given that it has a beta of 1.37, we can surmise that the Lai Sun Development share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Lai Sun Development 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 Lai Sun Development is growing earnings and revenue. You can take a look for yourself, below.
How does 488’s size impact its beta?
Lai Sun Development is a small company, but not tiny and little known. It has a market capitalisation of HK$6.7b, which means it would be on the radar of intstitutional investors. It is quite common to see a small-cap stock with a beta greater than one. In part, that’s because relatively few investors can influence the price of a smaller company, compared to a large company.
What this means for you:
Since Lai Sun Development has a reasonably high beta, it’s worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Lai Sun Development’s financial health and performance track record. I highly recommend you dive deeper by considering the following: