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Before You Buy Fomento de Construcciones y Contratas, S.A. (BME:FCC), Consider Its Volatility

Simply Wall St

If you're interested in Fomento de Construcciones y Contratas, S.A. (BME:FCC), 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. 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 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. 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.

Check out our latest analysis for Fomento de Construcciones y Contratas

What does FCC's beta value mean to investors?

Given that it has a beta of 0.90, we can surmise that the Fomento de Construcciones y Contratas share price has not been strongly impacted by broader market volatility (over the last 5 years). If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. Beta is worth considering, but it's also important to consider whether Fomento de Construcciones y Contratas is growing earnings and revenue. You can take a look for yourself, below.

BME:FCC Income Statement, September 17th 2019

How does FCC's size impact its beta?

Fomento de Construcciones y Contratas is a reasonably big company, with a market capitalisation of €4.3b. Most companies this size are actively traded with decent volumes of shares changing hands each day. It is a little unusual to see big companies like this trade on low beta values. Oftentimes there is some other clear influence on the share price, overshadowing market volatility.

What this means for you:

Since Fomento de Construcciones y Contratas is not heavily influenced by market moves, its share price is probably far more dependend on company specific developments. It could pay to take a closer look at metrics such as revenue growth, earnings growth, and debt. In order to fully understand whether FCC is a good investment for you, we also need to consider important company-specific fundamentals such as Fomento de Construcciones y Contratas’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 FCC’s future growth? Take a look at our free research report of analyst consensus for FCC’s outlook.
  2. Past Track Record: Has FCC 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 FCC's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how FCC 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.