【b&b charcoal logs】Before You Buy China Soft Power Technology Holdings Limited (HKG:139), Consider Its Volatility

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If you own shares in China Soft Power Technology Holdings Limited (

HKG:139

) 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 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 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. 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.

Check out our latest analysis for China Soft Power Technology Holdings

What we can learn from 139’s beta value

Given that it has a beta of 1.62, we can surmise that the China Soft Power Technology Holdings share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that China Soft Power Technology Holdings shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how China Soft Power Technology Holdings fares in that regard, below.

SEHK:139 Income Statement Export February 1st 19

How does 139’s size impact its beta?

With a market capitalisation of HK$500m, China Soft Power Technology Holdings is a very small company by global standards. It is quite likely to be unknown to most investors. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

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What this means for you:

Since China Soft Power Technology Holdings 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 139 is a good investment for you, we also need to consider important company-specific fundamentals such as China Soft Power Technology Holdings’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

Financial Health

: Are 139’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our

financial health checks here

.

Past Track Record

: Has 139 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 139’s historicals

for more clarity.

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

.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at

[email protected]

.

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