Beta

Beta measures a stock’s sensitivity to movements in the broader market. A beta of 1.0 means the stock tends to move in line with the market. Above 1.0 means it tends to move more than the market, and below 1.0 means less.

Why it matters in valuation

Beta is the key input to the capital asset pricing model, which estimates the cost of equity used inside the weighted average cost of capital. A higher beta implies more risk, a higher required return, and therefore a lower present value of future cash flows.

A note of caution

Beta is measured from past price data and can be unstable, especially for smaller or newly public companies. Analysts often adjust it or use an industry average rather than relying on a single noisy estimate.