Does Infrastructure and Energy Alternatives, Inc. (NASDAQ:IEA) Have A Volatile Share Price?
Anyone researching Infrastructure and Energy Alternatives, Inc. (NASDAQ:IEA) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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.
View our latest analysis for Infrastructure and Energy Alternatives
What we can learn from IEA's beta value
Given that it has a beta of 0.84, we can surmise that the Infrastructure and Energy Alternatives share price has not been strongly impacted by broader market volatility (over the last 5 years). This means that -- if history is a guide -- buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). 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 Infrastructure and Energy Alternatives's revenue and earnings in the image below.
Could IEA's size cause it to be more volatile?
Infrastructure and Energy Alternatives is a noticeably small company, with a market capitalisation of US$39m. Most companies this size are not always actively traded. Companies with market capitalisations around this size often show poor correlation with the broader market because market volatility is overshadowed by company specific events, or other factors. It's worth checking to see how often shares are traded, because very small companies with very low beta values are often only thinly traded.
What this means for you:
The Infrastructure and Energy Alternatives doesn't usually show much sensitivity to the broader market. This could be for a variety of reasons. Typically, smaller companies have a low beta if their share price tends to move a lot due to company specific developments. Alternatively, an strong dividend payer might move less than the market because investors are valuing it for its income stream. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Infrastructure and Energy Alternatives’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
Future Outlook: What are well-informed industry analysts predicting for IEA’s future growth? Take a look at our free research report of analyst consensus for IEA’s outlook.
Past Track Record: Has IEA 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 IEA's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how IEA measures up against other companies on valuation. You could start with this free list of prospective options.
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