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Does The 22nd Century Group, Inc. (NYSEMKT:XXII) Share Price Fall With The Market?

Simply Wall St
·4 mins read

Anyone researching 22nd Century Group, Inc. (NYSEMKT:XXII) 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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.

Check out our latest analysis for 22nd Century Group

What XXII's beta value tells investors

Zooming in on 22nd Century Group, we see it has a five year beta of 1.56. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, 22nd Century Group 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 22nd Century Group is growing earnings and revenue. You can take a look for yourself, below.

AMEX:XXII Income Statement, March 23rd 2020
AMEX:XXII Income Statement, March 23rd 2020

Does XXII's size influence the expected beta?

22nd Century Group is a rather small company. It has a market capitalisation of US$96m, which means it is probably under the radar of most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Since 22nd Century Group 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. In order to fully understand whether XXII is a good investment for you, we also need to consider important company-specific fundamentals such as 22nd Century Group’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Financial Health: Are XXII’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

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

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.