A measure of how much the stock price fluctuates over a year. Below 25% is moderate. Above 40% is high volatility. Lower volatility stocks tend to have more predictable returns and are easier to hold through turbulence.
Formula
Description
Measures total price volatility over the past year. Lower volatility stocks tend to have more predictable returns and are easier to hold through market turbulence. High volatility may create buying opportunities for patient value investors but also increases the risk of permanent capital loss.
Interpretation
Below 25% is moderate volatility. Above 40% is high. Compare to the market average (typically 15-20% for the S&P 500). Sudden increases in volatility may indicate emerging business problems or speculative trading activity.
Related Risk Indicators
Whether gross margins are improving or declining over five years. A positive trend means the company is gaining pricing power or reducing costs. Negative trends in a mature business are a warning sign.
Whether bottom-line profitability is improving or declining over five years. A positive trend indicates the business is becoming more profitable. The most durable improvement comes from expanding gross margins rather than cost-cutting.
The lowest ROIC recorded over five years. A company with a high minimum ROIC (above 10%) maintains strong returns even in bad years, indicating a genuinely strong business with a durable competitive advantage.
Measures the accrual component of earnings relative to total assets. When cash flow exceeds reported earnings, the company has high-quality earnings. Large accruals relative to assets are a red flag for potential manipulation.
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