Yahoo Finance The Supreme Cannabis Company, Inc. (TSE:FIRE): What Does Its Beta Value Mean For Your Portfolio?
Anyone researching The Supreme Cannabis Company, Inc. (TSE:FIRE) 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. 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 Supreme Cannabis Company
What does FIRE's beta value mean to investors?
Given that it has a beta of 1.24, we can surmise that the Supreme Cannabis Company share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Supreme Cannabis Company shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. 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 Supreme Cannabis Company's revenue and earnings in the image below.
Could FIRE's size cause it to be more volatile?
Supreme Cannabis Company is a rather small company. It has a market capitalisation of CA$464m, which means it is probably under the radar of most investors. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.
What this means for you:
Since Supreme Cannabis Company 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 FIRE is a good investment for you, we also need to consider important company-specific fundamentals such as Supreme Cannabis Company’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 FIRE’s future growth? Take a look at our free research report of analyst consensus for FIRE’s outlook.
Past Track Record: Has FIRE 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 FIRE's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how FIRE measures up against other companies on valuation. You could start with this free list of prospective options.
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.
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. Thank you for reading.
