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What Kind Of Share Price Volatility Should You Expect For Natural Grocers by Vitamin Cottage, Inc. (NYSE:NGVC)?

Simply Wall St

Anyone researching Natural Grocers by Vitamin Cottage, Inc. (NYSE:NGVC) might want to consider the historical volatility of the share price. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is 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.

View our latest analysis for Natural Grocers by Vitamin Cottage

What we can learn from NGVC's beta value

Given that it has a beta of 1.10, we can surmise that the Natural Grocers by Vitamin Cottage share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Natural Grocers by Vitamin Cottage 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 Natural Grocers by Vitamin Cottage fares in that regard, below.

NYSE:NGVC Income Statement, February 2nd 2020

Does NGVC's size influence the expected beta?

With a market capitalisation of US$204m, Natural Grocers by Vitamin Cottage is a very small company by global standards. It is quite likely to be unknown to most investors. 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 Natural Grocers by Vitamin Cottage 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 Natural Grocers by Vitamin Cottage’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Financial Health: Are NGVC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has NGVC 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 NGVC's historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.