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Before You Buy Celsius Holdings, Inc. (NASDAQ:CELH), Consider Its Volatility

Simply Wall St
·3 min read

If you're interested in Celsius Holdings, Inc. (NASDAQ:CELH), 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. 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 are more sensitive to general market forces than others. 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 Celsius Holdings

What does CELH's beta value mean to investors?

Zooming in on Celsius Holdings, we see it has a five year beta of 1.15. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, Celsius Holdings 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 Celsius Holdings is growing earnings and revenue. You can take a look for yourself, below.

NasdaqCM:CELH Income Statement April 17th 2020
NasdaqCM:CELH Income Statement April 17th 2020

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

Celsius Holdings is a rather small company. It has a market capitalisation of US$290m, 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:

Beta only tells us that the Celsius Holdings 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 CELH is a good investment for you, we also need to consider important company-specific fundamentals such as Celsius Holdings’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 CELH’s future growth? Take a look at our free research report of analyst consensus for CELH’s outlook.

  2. Past Track Record: Has CELH 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 CELH's historicals for more clarity.

  3. Other Interesting Stocks: It's worth checking to see how CELH measures up against other companies on valuation. You could start with this free list of prospective options.

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.

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. Thank you for reading.