Yahoo Finance Does Capstone Turbine Corporation (NASDAQ:CPST) Have A Particularly Volatile Share Price?
If you're interested in Capstone Turbine Corporation (NASDAQ:CPST), 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. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient 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. 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 Capstone Turbine
What CPST's beta value tells investors
Given that it has a beta of 1.18, we can surmise that the Capstone Turbine share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Capstone Turbine 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 Capstone Turbine is growing earnings and revenue. You can take a look for yourself, below.
How does CPST's size impact its beta?
Capstone Turbine is a noticeably small company, with a market capitalisation of US$11m. Most companies this size are not always actively traded. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.
What this means for you:
Since Capstone Turbine 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 CPST is a good investment for you, we also need to consider important company-specific fundamentals such as Capstone Turbine’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 CPST’s future growth? Take a look at our free research report of analyst consensus for CPST’s outlook.
Past Track Record: Has CPST 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 CPST's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how CPST 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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