What Kind Of Share Price Volatility Should You Expect For Sanderson Farms, Inc. (NASDAQ:SAFM)?

Simply Wall St

If you're interested in Sanderson Farms, Inc. (NASDAQ:SAFM), 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. 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 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.

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See our latest analysis for Sanderson Farms

What does SAFM's beta value mean to investors?

Given that it has a beta of 0.84, we can surmise that the Sanderson Farms share price has not been strongly impacted by broader market volatility (over the last 5 years). This means that -- if history is a guide -- buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). 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 Sanderson Farms's revenue and earnings in the image below.

NasdaqGS:SAFM Income Statement, May 16th 2019

Does SAFM's size influence the expected beta?

Sanderson Farms is a fairly large company. It has a market capitalisation of US$3.4b, which means it is probably on the radar of most investors. It is a little unusual to see big companies like this trade on low beta values. Oftentimes there is some other clear influence on the share price, overshadowing market volatility.

What this means for you:

One potential advantage of owning low beta stocks like Sanderson Farms is that your overall portfolio won't be too sensitive to overall market movements. However, this can be a blessing or a curse, depending on what's happening in the broader market. In order to fully understand whether SAFM is a good investment for you, we also need to consider important company-specific fundamentals such as Sanderson Farms’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for SAFM’s future growth? Take a look at our free research report of analyst consensus for SAFM’s outlook.
  2. Past Track Record: Has SAFM 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 SAFM's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how SAFM 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.