Anyone researching NeuroVive Pharmaceutical AB (STO:NVP) 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 other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient 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 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.
What we can learn from NVP’s beta value
With a beta of 1.08, (which is quite close to 1) the share price of NeuroVive Pharmaceutical has historically been about as voltile as the broader market. If the future looks like the past, we could therefore consider it likely that the stock price will experience share price volatility that is roughly similar to the overall market. Beta is worth considering, but it’s also important to consider whether NeuroVive Pharmaceutical is growing earnings and revenue. You can take a look for yourself, below.
Does NVP’s size influence the expected beta?
NeuroVive Pharmaceutical is a rather small company. It has a market capitalisation of kr307m, which means it is probably under the radar of most investors. It doesn’t take much money to really move the share price of a company as small as this one. That makes it somewhat unusual that it has a beta value so close to the overall market.
What this means for you:
NeuroVive Pharmaceutical has a beta value quite close to that of the overall market. That doesn’t tell us much on its own, so it is probably worth considering whether the company is growing, if you’re looking for stocks that will go up more than the overall market. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as NeuroVive Pharmaceutical’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for NVP’s future growth? Take a look at our free research report of analyst consensus for NVP’s outlook.
- Past Track Record: Has NVP been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of NVP’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how NVP measures up against other companies on valuation. You could start with this free list of prospective options.
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