Anyone researching Maui Land & Pineapple Company, Inc. (NYSE:MLP) 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. 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 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
What we can learn from MLP's beta value
Given that it has a beta of 0.81, we can surmise that the Maui Land & Pineapple Company share price has not been strongly impacted by broader market volatility (over the last 5 years). If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. Beta is worth considering, but it's also important to consider whether Maui Land & Pineapple Company is growing earnings and revenue. You can take a look for yourself, below.
Could MLP's size cause it to be more volatile?
Maui Land & Pineapple Company is a noticeably small company, with a market capitalisation of US$215m. Most companies this size are not always actively traded. Companies with market capitalisations around this size often show poor correlation with the broader market because market volatility is overshadowed by company specific events, or other factors. It's worth checking to see how often shares are traded, because very small companies with very low beta values are often only thinly traded.
What this means for you:
Since Maui Land & Pineapple Company is not heavily influenced by market moves, its share price is probably far more dependend on company specific developments. It could pay to take a closer look at metrics such as revenue growth, earnings growth, and debt. In order to fully understand whether MLP is a good investment for you, we also need to consider important company-specific fundamentals such as Maui Land & Pineapple Company’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for MLP’s future growth? Take a look at our free research report of analyst consensus for MLP’s outlook.
- Past Track Record: Has MLP 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 MLP's historicals for more clarity.
- Other Interesting Stocks: It's worth checking to see how MLP measures up against other companies on valuation. You could start with this free list of prospective options.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.