Yahoo Finance How Does Investing In Nufarm Limited (ASX:NUF) Impact The Volatility Of Your Portfolio?
Anyone researching Nufarm Limited (ASX:NUF) 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. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a 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 are more sensitive to general market forces than others. 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. 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.
See our latest analysis for Nufarm
What we can learn from NUF’s beta value
Looking at the last five years, Nufarm has a beta of 0.84. The fact that this is well below 1 indicates that its share price movements haven’t historically been very sensitive to overall market volatility. This means that — if history is a guide — buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). Beta is worth considering, but it’s also important to consider whether Nufarm is growing earnings and revenue. You can take a look for yourself, below.
Does NUF’s size influence the expected beta?
Nufarm is a small company, but not tiny and little known. It has a market capitalisation of AU$2.2b, which means it would be on the radar of intstitutional investors. Small companies often have a high beta value, but they can be heavily influenced by company-specific events. This might explain why this stock has a low beta.
What this means for you:
The Nufarm doesn’t usually show much sensitivity to the broader market. This could be for a variety of reasons. Typically, smaller companies have a low beta if their share price tends to move a lot due to company specific developments. Alternatively, an strong dividend payer might move less than the market because investors are valuing it for its income stream. In order to fully understand whether NUF is a good investment for you, we also need to consider important company-specific fundamentals such as Nufarm’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 NUF’s future growth? Take a look at our free research report of analyst consensus for NUF’s outlook.
Past Track Record: Has NUF 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 NUF’s historicals for more clarity.
Other Interesting Stocks: It’s worth checking to see how NUF 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.
