If you own stocks of Summit Materials, Inc. (NYSE: SUM), it's worth thinking about how this contributes to the volatility of your portfolio. In finance, beta is a measure of volatility. Volatility is considered a measure of risk in modern financial theory. Investors may think that volatility is divided into two main categories. The first type is company-specific volatility. Investors use uncorrelated equity diversification to reduce this type of price volatility across the entire portfolio. The second type is caused by the natural volatility of the markets as a whole. For example, certain macroeconomic events will affect (virtually) all securities in the market.

Some stocks see their prices move along with the market. Others tend toward stronger, softer or unrelated price movements. Beta is a widely used measure of a stock's exposure to market risk (volatility). Before proceeding, it should be noted that Warren Buffett pointed out in his 2014 letter to shareholders that "volatility is far from being risky". That said, the beta can still be quite useful. The first thing to understand about the beta is that the beta of the whole market is one. A stock with a beta greater than one is more sensitive to market movements than stocks with a beta below one.

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What does SUM's beta value mean for investors?

Over the past five years, Summit Materials has a beta version of 1.8. The fact that it is well above 1 indicates that stock price fluctuations have shown a sensitivity to overall market volatility. Based on the past, Summit Materials stocks can be expected to grow faster than markets in times of optimism, but fall more rapidly in times of pessimism. Many would argue that beta is useful for sizing positions, but that fundamental measures such as income and profits are more important in general. You can see the revenue and earnings of Summit Materials in the image below.

NYSE: SUM Income Statement Export 12th January 19

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Could the size of SUM make it more volatile?

With a market capitalization of US $ 1.6 billion, Summit Materials is a small-cap equity fund. However, it is important enough to attract the attention of professional investors. It is not particularly surprising that its beta is higher than that of the overall market. This is because it takes less money to influence the share price of a small business than a large company.

What does this mean for you?

Given that Summit Materials has a relatively high beta, it is helpful to understand why it is so deeply influenced by the overall market sentiment. For example, it can act as a high growth equity or a significant leverage in one's business model. The purpose of this article is to inform investors about beta values, but important fundamental principles of a company, such as financial health and performance performance, should also be considered. I strongly recommend that you dive deeper by considering the following points:

  1. Future prospects: What are well-informed industry analysts predicting future growth for SUM? Check out our free research report on analyst consensus regarding SUM's outlook.
  2. antecedents: Has SUM always performed well, regardless of the highs and lows of the market? Go into more detail in past performance analysis and take a look at the free visual representations of SUM's history for clarity.
  3. Other interesting actionsIt is useful to check how SUM compares to other companies in terms of evaluation. You can start with this free list of potential options.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "To help readers understand the past volatility of the financial market in the short term, our goal is to provide you with a long-term research analysis based solely on fundamental data. Note that our analysis does not take into account the latest price sensitive business announcements.

The author is an independent contributor and, at the time of publication, was not positioned in the mentioned actions. For errors that need to be corrected, please contact the publisher at editorial-team@simplywallst.com.

"data-reactid =" 53 "> To help readers understand the short-term volatility of the financial market, we aim to provide you with a long-term research analysis focusing on fundamental data only. ignores the latest price sensitive business announcements.

The author is an independent contributor and, at the time of publication, was not positioned in the mentioned actions. For errors that need to be corrected, please contact the publisher at editorial-team@simplywallst.com.