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How Does Investing In Maple Leaf Foods Inc. (TSE:MFI) Impact The Volatility Of Your Portfolio?

Simply Wall St

If you're interested in Maple Leaf Foods Inc. (TSE:MFI), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. 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 second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all 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 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. 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 Maple Leaf Foods

What does MFI's beta value mean to investors?

Zooming in on Maple Leaf Foods, we see it has a five year beta of 0.82. This is below 1, so historically its share price has been rather independent from the market. If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. Beta is worth considering, but it's also important to consider whether Maple Leaf Foods is growing earnings and revenue. You can take a look for yourself, below.

TSX:MFI Income Statement, February 3rd 2020

Could MFI's size cause it to be more volatile?

With a market capitalisation of CA$3.2b, Maple Leaf Foods is a pretty big company, even by global standards. It is quite likely well known to very many investors. When large companies like this one have a low beta value, there is usually some other factor that is having an outsized impact on the share price. For example, a business with significant fixed regulated assets might earn a reasonably predictable return, regardless of broader macroeconomic factors. Alternatively, lumpy earnings might mean minimal share price correlation with the broader market.

What this means for you:

Since Maple Leaf Foods is not heavily influenced by market moves, its share price is probably far more dependent on company specific developments. It could pay to take a closer look at metrics such as revenue growth, earnings growth, and debt. In order to fully understand whether MFI is a good investment for you, we also need to consider important company-specific fundamentals such as Maple Leaf Foods’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for MFI’s future growth? Take a look at our free research report of analyst consensus for MFI’s outlook.
  2. Past Track Record: Has MFI 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 MFI's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how MFI measures up against other companies on valuation. You could start with this free list of prospective options.

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.