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Ideal Power Inc. (NASDAQ:IPWR): What Does Its Beta Value Mean For Your Portfolio?

If you own shares in Ideal Power Inc. (NASDAQ:IPWR) 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. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 Ideal Power

What IPWR’s beta value tells investors

With a beta of 1.03, (which is quite close to 1) the share price of Ideal Power has historically been about as voltile as the broader market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won’t be particularly sensitive to it. Beta is worth considering, but it’s also important to consider whether Ideal Power is growing earnings and revenue. You can take a look for yourself, below.

NasdaqCM:IPWR Income Statement Export December 25th 18
NasdaqCM:IPWR Income Statement Export December 25th 18

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

With a market capitalisation of US$3.5m, Ideal Power is a very small company by global standards. It is quite likely to be unknown to most investors. It doesn’t take much money to really move the share price of a company as small as this one. That makes it somewhat unusual that it has a beta value so close to the overall market.

What this means for you:

It is probable that there is a link between the share price of Ideal Power 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. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Ideal Power’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 IPWR’s future growth? Take a look at our free research report of analyst consensus for IPWR’s outlook.

  2. Past Track Record: Has IPWR 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 IPWR’s historicals for more clarity.

  3. Other Interesting Stocks: It’s worth checking to see how IPWR 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.

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