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Cirrus Logic, Inc. (NASDAQ:CRUS): What Does Its Beta Value Mean For Your Portfolio?

Simply Wall St

If you're interested in Cirrus Logic, Inc. ( NASDAQ:CRUS ), 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. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

See our latest analysis for Cirrus Logic

What CRUS's beta value tells investors

Looking at the last five years, Cirrus Logic has a beta of 0.86. The fact that this is well below 1 indicates that its share price movements haven't historically been very sensitive to overall market volatility. If history is a good guide, owning the stock should help ensure that your portfolio is not overly sensitive to market volatility. 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 Cirrus Logic fares in that regard, below.

NasdaqGS:CRUS Income Statement, September 16th 2019

How does CRUS's size impact its beta?

Cirrus Logic is a fairly large company. It has a market capitalisation of US$3.2b, which means it is probably on the radar of most investors. It is a little unusual to see big companies like this trade on low beta values. Oftentimes there is some other clear influence on the share price, overshadowing market volatility.

What this means for you:

Since Cirrus Logic is not heavily influenced by market moves, its share price is probably far more dependend on company specific developments. It could pay to take a closer look at metrics such as revenue growth, earnings growth, and debt. In order to fully understand whether CRUS is a good investment for you, we also need to consider important company-specific fundamentals such as Cirrus Logic’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

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