Beta

Beta measures how much a stock moves relative to the market. A beta of 1.0 means it has historically moved roughly in step with the S&P 500. Above 1.0 it swings harder in both directions; below 1.0 it is steadier. It is measured by regressing five years of the stock's daily returns against the index.

In a valuation, beta is the dial that converts market-wide risk compensation into a company-specific one. It enters the cost of equity, which enters the wacc, which discounts every projected year. A high beta is therefore not a neutral description. It directly lowers the intrinsic value the model produces.

Angie bounds it, in both directions

• Floored at 0.30. Trailing daily betas against a tech-led index come out implausibly low for defensives: Johnson & Johnson measures 0.16, Coca-Cola 0.27. No practitioner discounts a listed equity at a 0.16 beta.
• Capped at 1.6. A measured beta above 2 is unstable and sample-specific, and does not mean a forward cost of equity above 16 percent is right.
• Refused entirely when the measurement is degenerate: too little history, a constant price, or a computed beta of exactly zero.

That last case matters more than it sounds. A beta of exactly 0.0 drives the cost of equity down to the risk-free rate and the WACC straight to its floor, which is where the terminal guards are loosest. Thirteen live rows once carried beta 0.0 for that reason, and floored rows came back undervalued at nearly double the rate of everything else. Angie now distinguishes 'we could not measure this' from 'this stock does not move with the market', because they are different claims.