In This Article:
If you're interested in Rimfire Pacific Mining NL (ASX:RIM), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. 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 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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 below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.
Check out our latest analysis for Rimfire Pacific Mining
What does RIM's beta value mean to investors?
Given that it has a beta of 1.6, we can surmise that the Rimfire Pacific Mining share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Rimfire Pacific Mining 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 Rimfire Pacific Mining is growing earnings and revenue. You can take a look for yourself, below.
How does RIM's size impact its beta?
Rimfire Pacific Mining is a rather small company. It has a market capitalisation of AU$5.3m, which means it is probably under the radar of most investors. 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 Rimfire Pacific Mining 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. In order to fully understand whether RIM is a good investment for you, we also need to consider important company-specific fundamentals such as Rimfire Pacific Mining’s financial health and performance track record. I urge you to continue your research by taking a look at the following: