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Compass Minerals International, Inc. (NYSE:CMP): What Does Its Beta Value Mean For Your Portfolio?

Simply Wall St
·3 min read

If you're interested in Compass Minerals International, Inc. (NYSE:CMP), 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. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks on the market.

Some stocks are more sensitive to general market forces than others. 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 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 Compass Minerals International

What we can learn from CMP's beta value

Given that it has a beta of 1.51, we can surmise that the Compass Minerals International share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Compass Minerals International are likely to rise strongly in times of greed, but sell off in times of fear. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Compass Minerals International's revenue and earnings in the image below.

NYSE:CMP Income Statement April 19th 2020
NYSE:CMP Income Statement April 19th 2020

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

With a market capitalisation of US$1.4b, Compass Minerals International is a small cap stock. However, it is big enough to catch the attention of professional 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:

Since Compass Minerals International tends to move up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Compass Minerals International’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 CMP’s future growth? Take a look at our free research report of analyst consensus for CMP’s outlook.

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

  3. Other Interesting Stocks: It's worth checking to see how CMP 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.