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Before You Buy AcuityAds Holdings Inc. (TSE:AT), Consider Its Volatility

Simply Wall St

If you're interested in AcuityAds Holdings Inc. ( TSE:AT ), 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. 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. 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 AcuityAds Holdings

What does AT's beta value mean to investors?

Given that it has a beta of 1.46, we can surmise that the AcuityAds 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 AcuityAds Holdings shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it's also important to consider whether AcuityAds Holdings is growing earnings and revenue. You can take a look for yourself, below.

TSX:AT Income Statement, September 18th 2019

Does AT's size influence the expected beta?

AcuityAds Holdings is a rather small company. It has a market capitalisation of CA$65m, which means it is probably under the radar of 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.

What this means for you:

Since AcuityAds Holdings tends to moves up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as AcuityAds Holdings’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

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