Before You Buy rhipe Limited (ASX:RHP), Consider Its Volatility
Anyone researching rhipe Limited (ASX:RHP) 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 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.
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See our latest analysis for rhipe
What does RHP's beta value mean to investors?
Zooming in on rhipe, we see it has a five year beta of 1.24. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. Based on this history, investors should be aware that rhipe are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether rhipe is growing earnings and revenue. You can take a look for yourself, below.
Could RHP's size cause it to be more volatile?
rhipe is a rather small company. It has a market capitalisation of AU$331m, 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 rhipe 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 RHP is a good investment for you, we also need to consider important company-specific fundamentals such as rhipe’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 RHP’s future growth? Take a look at our free research report of analyst consensus for RHP’s outlook.
Past Track Record: Has RHP 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 RHP's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how RHP 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.
