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Should You Be Concerned About Napier Ventures Inc.'s (CVE:NAP) Historical Volatility?

Simply Wall St
·3 mins read

If you own shares in Napier Ventures Inc. (CVE:NAP) 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 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 are more sensitive to general market forces than others. 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 below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.

See our latest analysis for Napier Ventures

What does NAP's beta value mean to investors?

Looking at the last five years, Napier Ventures has a beta of 1.68. 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, Napier Ventures 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 Napier Ventures is growing earnings and revenue. You can take a look for yourself, below.

TSXV:NAP Income Statement, February 25th 2020
TSXV:NAP Income Statement, February 25th 2020

Does NAP's size influence the expected beta?

Napier Ventures is a rather small company. It has a market capitalisation of CA$2.8m, 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 Napier Ventures 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 NAP is a good investment for you, we also need to consider important company-specific fundamentals such as Napier Ventures’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Past Track Record: Has NAP 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 NAP's historicals for more clarity.

  2. 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.