How Does Investing In MS Industrie AG (ETR:MSAG) Impact The Volatility Of Your Portfolio?

View photos

If you’re interested in MS Industrie AG (ETR:MSAG), 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 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated 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.

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Check out our latest analysis for MS Industrie

What MSAG’s beta value tells investors

MS Industrie has a five-year beta of 1.08. This is reasonably close to the market beta of 1, so the stock has in the past displayed similar levels of volatility to the overall market. Using history as a guide, we might surmise that the share price is likely to be influenced by market voltility going forward but it probably won’t be particularly sensitive to it. 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 MS Industrie’s revenue and earnings in the image below.

XTRA:MSAG Income Statement, May 16th 2019

Does MSAG’s size influence the expected beta?

MS Industrie is a rather small company. It has a market capitalisation of €95m, which means it is probably under the radar of most investors. It doesn’t take much money to really move the share price of a company as small as this one. That makes it somewhat unusual that it has a beta value so close to the overall market.

What this means for you:

Since MS Industrie has a beta close to one, it will probably show a positive return when the market is moving up, based on history. If you’re trying to generate better returns than the market, it would be worth thinking about other metrics such as cashflows, dividends and revenue growth might be a more useful guide to the future. In order to fully understand whether MSAG is a good investment for you, we also need to consider important company-specific fundamentals such as MS Industrie’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 MSAG’s future growth? Take a look at our free research report of analyst consensus for MSAG’s outlook.
  2. Past Track Record: Has MSAG 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 MSAG’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how MSAG 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.