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Implenia AG (VTX:IMPN): What Does Its Beta Value Mean For Your Portfolio?

Simply Wall St

If you're interested in Implenia AG (VTX:IMPN), 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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. 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 below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.

See our latest analysis for Implenia

What IMPN's beta value tells investors

Looking at the last five years, Implenia has a beta of 1.25. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If this beta value holds true in the future, Implenia shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Beta is worth considering, but it's also important to consider whether Implenia is growing earnings and revenue. You can take a look for yourself, below.

SWX:IMPN Income Statement, August 31st 2019

How does IMPN's size impact its beta?

Implenia is a small company, but not tiny and little known. It has a market capitalisation of CHF624m, which means it would be on the radar of intstitutional investors. It is quite common to see a small-cap stock with a beta greater than one. In part, that's because relatively few investors can influence the price of a smaller company, compared to a large company.

What this means for you:

Since Implenia 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 IMPN is a good investment for you, we also need to consider important company-specific fundamentals such as Implenia’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 IMPN’s future growth? Take a look at our free research report of analyst consensus for IMPN’s outlook.
  2. Past Track Record: Has IMPN 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 IMPN's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how IMPN measures up against other companies on valuation. You could start with this free list of prospective options.

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.

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. Thank you for reading.