In This Article:
Anyone researching WestStar Industrial Limited (ASX:WSI) 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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. 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.
View our latest analysis for WestStar Industrial
What does WSI’s beta value mean to investors?
Looking at the last five years, WestStar Industrial has a beta of 1.21. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If this beta value holds true in the future, WestStar Industrial shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Beta is worth considering, but it’s also important to consider whether WestStar Industrial is growing earnings and revenue. You can take a look for yourself, below.
Does WSI’s size influence the expected beta?
WestStar Industrial is a noticeably small company, with a market capitalisation of AU$8.4m. 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.
What this means for you:
Beta only tells us that the WestStar Industrial share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there’s plenty more to learn. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as WestStar Industrial’s financial health and performance track record. I urge you to continue your research by taking a look at the following: