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Does China Sunshine Paper Holdings Company Limited (HKG:2002) Have A Particularly Volatile Share Price?

Simply Wall St

Anyone researching China Sunshine Paper Holdings Company Limited (HKG:2002) 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 sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all 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.

See our latest analysis for China Sunshine Paper Holdings

What 2002's beta value tells investors

Zooming in on China Sunshine Paper Holdings, we see it has a five year beta of 1.84. 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, China Sunshine Paper Holdings shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 China Sunshine Paper Holdings's revenue and earnings in the image below.

SEHK:2002 Income Statement, August 6th 2019

Could 2002's size cause it to be more volatile?

With a market capitalisation of HK$893m, China Sunshine Paper Holdings is a very small company by global standards. It is quite likely to be unknown to 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 China Sunshine Paper Holdings 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 2002 is a good investment for you, we also need to consider important company-specific fundamentals such as China Sunshine Paper 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 2002’s future growth? Take a look at our free research report of analyst consensus for 2002’s outlook.
  2. Past Track Record: Has 2002 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 2002's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how 2002 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.