Anyone researching Nordic Semiconductor ASA (OB:NOD) 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 type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks on the market.
Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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.
What does NOD’s beta value mean to investors?
Looking at the last five years, Nordic Semiconductor has a beta of 1.28. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If this beta value holds true in the future, Nordic Semiconductor 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 Nordic Semiconductor is growing earnings and revenue. You can take a look for yourself, below.
Could NOD’s size cause it to be more volatile?
Nordic Semiconductor is a small cap stock with a market capitalisation of kr9.4b. Most companies this size are actively traded. It’s not particularly surprising that it has a higher beta than the overall market. That’s because it takes less money to influence the share price of a smaller company, than a bigger company.
What this means for you:
Since Nordic Semiconductor 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. In order to fully understand whether NOD is a good investment for you, we also need to consider important company-specific fundamentals such as Nordic Semiconductor’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 NOD’s future growth? Take a look at our free research report of analyst consensus for NOD’s outlook.
- Past Track Record: Has NOD 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 NOD’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how NOD measures up against other companies on valuation. You could start with this free list of prospective options.
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