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Should You Be Concerned About CatchMark Timber Trust, Inc.'s (NYSE:CTT) Historical Volatility?

Simply Wall St

If you're interested in CatchMark Timber Trust, Inc. (NYSE:CTT), 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 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 can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said 'volatility is far from synonymous with risk' in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of one. A stock with a beta below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.

View our latest analysis for CatchMark Timber Trust

What does CTT's beta value mean to investors?

Given that it has a beta of 1.27, we can surmise that the CatchMark Timber Trust share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, CatchMark Timber Trust 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 CatchMark Timber Trust is growing earnings and revenue. You can take a look for yourself, below.

NYSE:CTT Income Statement, December 31st 2019

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

CatchMark Timber Trust is a small cap stock with a market capitalisation of US$562m. Most companies this size are actively traded. It's not particularly surprising that it has a higher beta than the overall market. That's because it takes less money to influence the share price of a smaller company, than a bigger company.

What this means for you:

Beta only tells us that the CatchMark Timber Trust 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 CatchMark Timber Trust’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 CTT’s future growth? Take a look at our free research report of analyst consensus for CTT’s outlook.
  2. Past Track Record: Has CTT 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 CTT's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how CTT 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.