The Beta for FLIR Systems
Joey Moss, a recent finance graduate, has just begun his job
with the investment firm of Covili and Wyatt. Janet Covili,
one of the firm’s founders, has been talking to Joey about
the firm’s investment portfolio. As with any investment,
Janet is concerned about the risk of the investment as well
as the potential return. More specifically, because the
company holds a diversified portfolio, Janet is concerned
about the systematic risk of current and potential
investments. One position the company currently holds is
stock in FLIR Systems, Inc. (FLIR). FLIR Systems designs,
manufactures, and markets thermal imaging and infrared
camera systems. Although better known for its military
applications, the company has divisions that design products
for other applications such as automotive night vision,
commercial products that require minute temperature
difference measurements, recreational marine usage, and
firefighting.
Covili and Wyatt currently uses a commercial data vendor
for information about its positions. Because of this, Janet is
unsure exactly how the numbers provided are cal The data provider considers its methods proprietary, and it
will not disclose how stock betas and other information are
calculated. Janet is uncomfortable with not knowing exactly
how these numbers are being computed and also believes
that it could be less expensive to calculate the necessary
statistics in-house. To explore this question, Janet has asked
Joey to do the following assignments:
Question: How does a stock’s beta impact its expected
rate of return and share valuation for FLIR Systems?
