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What You Must Know About zooplus AG's (FRA:ZO1) Beta Value

Simply Wall St

If you're interested in zooplus AG (FRA:ZO1), 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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. 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 zooplus

What ZO1's beta value tells investors

Given that it has a beta of 1.13, we can surmise that the zooplus share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, zooplus 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 zooplus is growing earnings and revenue. You can take a look for yourself, below.

DB:ZO1 Income Statement, August 22nd 2019

Could ZO1's size cause it to be more volatile?

With a market capitalisation of €802m, zooplus is a small cap stock. However, it is big enough to catch the attention of professional investors. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.

What this means for you:

Beta only tells us that the zooplus share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. In order to fully understand whether ZO1 is a good investment for you, we also need to consider important company-specific fundamentals such as zooplus’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 ZO1’s future growth? Take a look at our free research report of analyst consensus for ZO1’s outlook.
  2. Past Track Record: Has ZO1 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 ZO1's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how ZO1 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.