Angie · learn
Beta
How much the stock moves relative to the S&P 500. A beta of 1.0 moves with the market, higher is more volatile, and higher volatility raises the discount rate.
A fuller explanation of this one is still being written. The definition above is the short answer.
See also
- Cost of equity — The return shareholders demand for owning this particular company. Known as CAPM, the capital asset pricing model.
- WACC — Cost of equity and cost of debt blended by how much of each the company uses. This is the rate every future dollar is discounted at, and it is the single most leveraged input in the model.
- Startup beta adjust — Dampens an unstable post-IPO beta by 15%. A company with only months of trading history measures its own novelty as much as its risk.
- Equity risk premium — The extra return investors demand for holding stocks instead of Treasuries. Beta scales it up or down for one particular company.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
