If you own shares in Carter Bank & Trust (NASDAQ:CARE) 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. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that ‘Volatility is far from synonymous with risk’, beta is still a useful factor to consider. To make good use of it you must first know 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.
See our latest analysis for Carter Bank & Trust
What does CARE’s beta value mean to investors?
Zooming in on Carter Bank & Trust, we see it has a five year beta of 1.18. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, Carter Bank & Trust shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 Carter Bank & Trust’s revenue and earnings in the image below.
NasdaqGS:CARE Income Statement May 4th 2020
Could CARE’s size cause it to be more volatile?
Carter Bank & Trust is a rather small company. It has a market capitalisation of US$233m, 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 Carter Bank & Trust 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 CARE is a good investment for you, we also need to consider important company-specific fundamentals such as Carter Bank & Trust’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 CARE’s future growth? Take a look at our free research report of analyst consensus for CARE’s outlook.
- Past Track Record: Has CARE 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 CARE’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how CARE 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.
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