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Should You Be Concerned About Verimatrix Société anonyme's (EPA:VMX) Historical Volatility?

Simply Wall St

If you own shares in Verimatrix Société anonyme (EPA:VMX) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. 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 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 Verimatrix Société anonyme

What does VMX's beta value mean to investors?

Given that it has a beta of 1.58, we can surmise that the Verimatrix Société anonyme share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Verimatrix Société anonyme 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 Verimatrix Société anonyme's revenue and earnings in the image below.

ENXTPA:VMX Income Statement, December 10th 2019

Does VMX's size influence the expected beta?

Verimatrix Société anonyme is a noticeably small company, with a market capitalisation of €162m. Most companies this size are not always actively traded. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.

What this means for you:

Since Verimatrix Société anonyme has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. In order to fully understand whether VMX is a good investment for you, we also need to consider important company-specific fundamentals such as Verimatrix Société anonyme’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 VMX’s future growth? Take a look at our free research report of analyst consensus for VMX’s outlook.
  2. Past Track Record: Has VMX 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 VMX's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how VMX 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.