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How Does Tuesday Morning Corporation (NASDAQ:TUES) Affect Your Portfolio Volatility?

David Rizzo

If you own shares in Tuesday Morning Corporation (NASDAQ:TUES) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient 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 Tuesday Morning

What does TUES’s beta value mean to investors?

Given that it has a beta of 1.24, we can surmise that the Tuesday Morning share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Tuesday Morning shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. 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 Tuesday Morning’s revenue and earnings in the image below.

NasdaqGS:TUES Income Statement Export January 4th 19

Could TUES’s size cause it to be more volatile?

With a market capitalisation of US$83m, Tuesday Morning is a very small company by global standards. It is quite likely to be unknown to most investors. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Since Tuesday Morning tends to moves up when the market is going up, and down when it’s going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether TUES is a good investment for you, we also need to consider important company-specific fundamentals such as Tuesday Morning’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 TUES’s future growth? Take a look at our free research report of analyst consensus for TUES’s outlook.
  2. Past Track Record: Has TUES 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 TUES’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how TUES measures up against other companies on valuation. You could start with this free list of prospective options.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.