In This Article:
Anyone researching SRT Marine Systems plc (LON:SRT) 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 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. 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
View our latest analysis for SRT Marine Systems
What SRT’s beta value tells investors
Given that it has a beta of 1.46, we can surmise that the SRT Marine Systems share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that SRT Marine Systems 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 SRT Marine Systems is growing earnings and revenue. You can take a look for yourself, below.
How does SRT’s size impact its beta?
SRT Marine Systems is a rather small company. It has a market capitalisation of UK£35.6m, which means it is probably under the radar of most investors. 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 SRT Marine Systems 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 SRT Marine Systems’s financial health and performance track record. I urge you to continue your research by taking a look at the following: