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Abraxas Petroleum Corporation (NASDAQ:AXAS): What Does Its Beta Value Mean For Your Portfolio?

Simply Wall St

If you own shares in Abraxas Petroleum Corporation (NASDAQ:AXAS) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 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. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is 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 Abraxas Petroleum

What does AXAS's beta value mean to investors?

Given that it has a beta of 1.74, we can surmise that the Abraxas Petroleum share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Abraxas Petroleum 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 Abraxas Petroleum is growing earnings and revenue. You can take a look for yourself, below.

NasdaqCM:AXAS Income Statement, September 25th 2019

Could AXAS's size cause it to be more volatile?

Abraxas Petroleum is a noticeably small company, with a market capitalisation of US$88m. Most companies this size are not always actively traded. 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 Abraxas Petroleum 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. In order to fully understand whether AXAS is a good investment for you, we also need to consider important company-specific fundamentals such as Abraxas Petroleum’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for AXAS’s future growth? Take a look at our free research report of analyst consensus for AXAS’s outlook.
  2. Past Track Record: Has AXAS 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 AXAS's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how AXAS measures up against other companies on valuation. You could start with this free list of prospective options.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.