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Should You Be Concerned About MasterCraft Boat Holdings, Inc.'s (NASDAQ:MCFT) Historical Volatility?

Simply Wall St

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Anyone researching MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT) 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 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. 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. 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 MasterCraft Boat Holdings

What does MCFT's beta value mean to investors?

Given that it has a beta of 1.71, we can surmise that the MasterCraft Boat Holdings share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that MasterCraft Boat Holdings shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how MasterCraft Boat Holdings fares in that regard, below.

NasdaqGM:MCFT Income Statement, May 14th 2019

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

MasterCraft Boat Holdings is a rather small company. It has a market capitalisation of US$479m, which means it is probably under the radar of most investors. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

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