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Does Profire Energy, Inc. (NASDAQ:PFIE) Have A Volatile Share Price?

Simply Wall St

Anyone researching Profire Energy, Inc. (NASDAQ:PFIE) 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 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

View our latest analysis for Profire Energy

What PFIE's beta value tells investors

Given that it has a beta of 1.52, we can surmise that the Profire Energy share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Profire Energy are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether Profire Energy is growing earnings and revenue. You can take a look for yourself, below.

NasdaqCM:PFIE Income Statement, January 14th 2020
NasdaqCM:PFIE Income Statement, January 14th 2020

How does PFIE's size impact its beta?

Profire Energy is a noticeably small company, with a market capitalisation of US$64m. Most companies this size are not always actively traded. 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 Profire Energy 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Profire Energy’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 PFIE’s future growth? Take a look at our free research report of analyst consensus for PFIE’s outlook.

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

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