Anyone researching Minerals Technologies Inc. (NYSE:MTX) 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. 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.
What MTX's beta value tells investors
Given that it has a beta of 1.87, we can surmise that the Minerals Technologies share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Minerals Technologies 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 Minerals Technologies is growing earnings and revenue. You can take a look for yourself, below.
How does MTX's size impact its beta?
Minerals Technologies is a small company, but not tiny and little known. It has a market capitalisation of US$1.9b, which means it would be on the radar of intstitutional investors. It is quite common to see a small-cap stock with a beta greater than one. In part, that's because relatively few investors can influence the price of a smaller company, compared to a large company.
What this means for you:
Beta only tells us that the Minerals Technologies 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Minerals Technologies’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 MTX’s future growth? Take a look at our free research report of analyst consensus for MTX’s outlook.
- Past Track Record: Has MTX 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 MTX's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how MTX measures up against other companies on valuation. You could start with this free list of prospective options.
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