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Does The Unique Fabricating, Inc. (NYSEMKT:UFAB) Share Price Tend To Follow The Market?

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If you're interested in Unique Fabricating, Inc. (NYSEMKT:UFAB), 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 are more sensitive to general market forces than others. 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 Unique Fabricating

What UFAB's beta value tells investors

Given that it has a beta of 1.35, we can surmise that the Unique Fabricating share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Unique Fabricating shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 Unique Fabricating fares in that regard, below.

AMEX:UFAB Income Statement, March 17th 2020
AMEX:UFAB Income Statement, March 17th 2020

How does UFAB's size impact its beta?

Unique Fabricating is a noticeably small company, with a market capitalisation of US$25m. Most companies this size are not always actively traded. 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 Unique Fabricating 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. In order to fully understand whether UFAB is a good investment for you, we also need to consider important company-specific fundamentals such as Unique Fabricating’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 UFAB’s future growth? Take a look at our free research report of analyst consensus for UFAB’s outlook.

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

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