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Does The Allied Motion Technologies Inc. (NASDAQ:AMOT) Share Price Tend To Follow The Market?

Simply Wall St

If you own shares in Allied Motion Technologies Inc. (NASDAQ:AMOT) 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. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

View our latest analysis for Allied Motion Technologies

What does AMOT's beta value mean to investors?

Given that it has a beta of 1.59, we can surmise that the Allied Motion Technologies share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Allied Motion Technologies 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 Allied Motion Technologies's revenue and earnings in the image below.

NasdaqGM:AMOT Income Statement, August 19th 2019

How does AMOT's size impact its beta?

Allied Motion Technologies is a rather small company. It has a market capitalisation of US$326m, which means it is probably under the radar of most investors. 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 Allied Motion Technologies 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 AMOT is a good investment for you, we also need to consider important company-specific fundamentals such as Allied Motion Technologies’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 AMOT’s future growth? Take a look at our free research report of analyst consensus for AMOT’s outlook.
  2. Past Track Record: Has AMOT 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 AMOT's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how AMOT 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.