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Does Market Volatility Impact IMAX Corporation's (NYSE:IMAX) Share Price?

Simply Wall St

If you're interested in IMAX Corporation (NYSE:IMAX), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. 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 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. 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 IMAX

What we can learn from IMAX's beta value

While history does not always repeat, this level of beta may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how IMAX fares in that regard, below.

NYSE:IMAX Income Statement, January 27th 2020
NYSE:IMAX Income Statement, January 27th 2020

Does IMAX's size influence the expected beta?

IMAX is a small company, but not tiny and little known. It has a market capitalisation of US$1.1b, which means it would be on the radar of intstitutional investors.

What this means for you:

It is probable that there is a link between the share price of IMAX 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 IMAX is a good investment for you, we also need to consider important company-specific fundamentals such as IMAX’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 IMAX’s future growth? Take a look at our free research report of analyst consensus for IMAX’s outlook.

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

  3. Other Interesting Stocks: It's worth checking to see how IMAX 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.