Why You Need To Look At This Factor Before Buying Broadwind Energy Inc (NASDAQ:BWEN)
Anyone researching Broadwind Energy Inc (NASDAQ:BWEN) 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated 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. 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 Broadwind Energy
What BWEN’s beta value tells investors
Given that it has a beta of 1.37, we can surmise that the Broadwind Energy share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Broadwind Energy 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 Broadwind Energy is growing earnings and revenue. You can take a look for yourself, below.
Does BWEN’s size influence the expected beta?
Broadwind Energy is a rather small company. It has a market capitalisation of US$33m, which means it is probably under the radar of most investors. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.
What this means for you:
Since Broadwind Energy tends to moves up when the market is going up, and down when it’s going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether BWEN is a good investment for you, we also need to consider important company-specific fundamentals such as Broadwind Energy’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for BWEN’s future growth? Take a look at our free research report of analyst consensus for BWEN’s outlook.
Past Track Record: Has BWEN 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 BWEN’s historicals for more clarity.
Other Interesting Stocks: It’s worth checking to see how BWEN 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.
