Does Heritage-Crystal Clean, Inc (NASDAQ:HCCI) Have A High Beta?
Anyone researching Heritage-Crystal Clean, Inc (NASDAQ:HCCI) 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. 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 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. 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 Heritage-Crystal Clean
What we can learn from HCCI's beta value
Given that it has a beta of 1.59, we can surmise that the Heritage-Crystal Clean share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Heritage-Crystal Clean are likely to rise strongly in times of greed, but sell off in times of fear. 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 Heritage-Crystal Clean's revenue and earnings in the image below.
How does HCCI's size impact its beta?
Heritage-Crystal Clean is a small cap stock with a market capitalisation of US$667m. Most companies this size are actively traded. It's not particularly surprising that it has a higher beta than the overall market. That's because it takes less money to influence the share price of a smaller company, than a bigger company.
What this means for you:
Since Heritage-Crystal Clean 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 HCCI is a good investment for you, we also need to consider important company-specific fundamentals such as Heritage-Crystal Clean’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 HCCI’s future growth? Take a look at our free research report of analyst consensus for HCCI’s outlook.
Past Track Record: Has HCCI 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 HCCI's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how HCCI 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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