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How Does Investing In Johnson Outdoors Inc. (NASDAQ:JOUT) Impact The Volatility Of Your Portfolio?

Simply Wall St

Anyone researching Johnson Outdoors Inc. (NASDAQ:JOUT) might want to consider the historical volatility of the share price. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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.

Check out our latest analysis for Johnson Outdoors

What we can learn from JOUT's beta value

With a beta of 0.92, (which is quite close to 1) the share price of Johnson Outdoors has historically been about as voltile as the broader market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won't be particularly sensitive to it. 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 Johnson Outdoors's revenue and earnings in the image below.

NasdaqGS:JOUT Income Statement, September 19th 2019

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

Johnson Outdoors is a small company, but not tiny and little known. It has a market capitalisation of US$584m, which means it would be on the radar of intstitutional investors. Small companies often have a high beta value because the stock price can move on relatively low capital flows. So it's interesting to note that this stock historically has a beta value quite close to one.

What this means for you:

It is probable that there is a link between the share price of Johnson Outdoors and the broader market, since it has a beta value quite close to one. However, long term investors are generally well served by looking past market volatility and focussing on the underlying development of the business. If that's your game, metrics such as revenue, earnings and cash flow will be more useful. In order to fully understand whether JOUT is a good investment for you, we also need to consider important company-specific fundamentals such as Johnson Outdoors’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 JOUT’s future growth? Take a look at our free research report of analyst consensus for JOUT’s outlook.
  2. Past Track Record: Has JOUT 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 JOUT's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how JOUT 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.