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Piquadro S.p.A. (BIT:PQ): What Does Its Beta Value Mean For Your Portfolio?

Simply Wall St

Anyone researching Piquadro S.p.A. (BIT:PQ) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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. 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.

Check out our latest analysis for Piquadro

What does PQ's beta value mean to investors?

As it happens, Piquadro has a five year beta of 1.06. This is fairly close to 1, so the stock has historically shown a somewhat similar level of volatility as the market. While history does not always repeat, this may indicate that the stock price will continue to be exposed to market risk, albeit not overly so. 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 Piquadro fares in that regard, below.

BIT:PQ Income Statement, December 4th 2019

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

Piquadro is a noticeably small company, with a market capitalisation of €116m. Most companies this size are not always actively traded. 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 Piquadro 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. In order to fully understand whether PQ is a good investment for you, we also need to consider important company-specific fundamentals such as Piquadro’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 PQ’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 PQ 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 PQ'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.