If you own shares in BlackBerry Limited (TSE:BB) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 are more sensitive to general market forces than others. 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.
What BB’s beta value tells investors
Given that it has a beta of 1.43, we can surmise that the BlackBerry share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that BlackBerry are likely to rise strongly in times of greed, but sell off in times of fear. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see BlackBerry’s revenue and earnings in the image below.
Could BB’s size cause it to be more volatile?
With a market capitalisation of CA$4.6b, BlackBerry is a pretty big company, even by global standards. It is quite likely well known to very many investors. It takes a lot of money to influence the share price of large companies like this one. That makes it interesting to note that its share price has a history of sensitivity to market volatility. There might be some aspect of the business that means profits are leveraged to the economic cycle.
What this means for you:
Since BlackBerry 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 BB is a good investment for you, we also need to consider important company-specific fundamentals such as BlackBerry’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for BB’s future growth? Take a look at our free research report of analyst consensus for BB’s outlook.
- Past Track Record: Has BB 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 BB’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how BB measures up against other companies on valuation. You could start with this free list of prospective options.