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Should You Be Concerned About AudioEye, Inc.'s (NASDAQ:AEYE) Historical Volatility?

Simply Wall St

If you're interested in AudioEye, Inc. (NASDAQ:AEYE), 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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. 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.

See our latest analysis for AudioEye

What does AEYE's beta value mean to investors?

With a beta of 1.01, (which is quite close to 1) the share price of AudioEye has historically been about as voltile as the broader market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won't be particularly sensitive to it. 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 AudioEye's revenue and earnings in the image below.

NasdaqCM:AEYE Income Statement, September 4th 2019

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

With a market capitalisation of US$29m, AudioEye is a very small company by global standards. It is quite likely to be unknown to most investors. Companies this small are usually more volatile than the market, whether or not that volatility is correlated. Therefore, it's a bit surprising to see that this stock has a beta value so close to the overall market.

What this means for you:

It is probable that there is a link between the share price of AudioEye and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that's your game, metrics such as revenue, earnings and cash flow will be more useful. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as AudioEye’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for AEYE’s future growth? Take a look at our free research report of analyst consensus for AEYE’s outlook.
  2. Past Track Record: Has AEYE 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 AEYE's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how AEYE 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.