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Does Midnight Sun Mining Corp. (CVE:MMA) Have A Particularly Volatile Share Price?

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Simply Wall St
·4-min read
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If you own shares in Midnight Sun Mining Corp. (CVE:MMA) 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. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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.

View our latest analysis for Midnight Sun Mining

What MMA's beta value tells investors

Zooming in on Midnight Sun Mining, we see it has a five year beta of 1.58. 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, Midnight Sun Mining 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 Midnight Sun Mining's revenue and earnings in the image below.

TSXV:MMA Income Statement, February 6th 2020
TSXV:MMA Income Statement, February 6th 2020

Does MMA's size influence the expected beta?

With a market capitalisation of CA$10m, Midnight Sun Mining is a very small company by global standards. It is quite likely to be unknown to most investors. 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:

Beta only tells us that the Midnight Sun Mining share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. In order to fully understand whether MMA is a good investment for you, we also need to consider important company-specific fundamentals such as Midnight Sun Mining’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Past Track Record: Has MMA 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 MMA's historicals for more clarity.

  2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.

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. Thank you for reading.