For Montea Comm VA’s (ENXTBR:MONT) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. There are two types of risks that affect the market value of a listed company such as MONT. The first type is company-specific risk, which can be diversified away by investing in other companies to reduce exposure to one particular stock. The second risk is market-wide, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks.
Not all stocks are expose to the same level of market risk. The most widely used metric to quantify a stock’s market risk is beta, and the market as a whole represents a beta of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.See our latest analysis for Montea Comm. VA
An interpretation of MONT’s beta
Montea Comm. VA’s beta of 0.14 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in MONT’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. MONT’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Does MONT’s size and industry impact the expected beta?
A market capitalisation of €512.02M puts MONT in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, MONT’s industry, reits, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the reits industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by MONT’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How MONT’s assets could affect its beta
An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I examine MONT’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, MONT appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of MONT indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts MONT’s current beta value which indicates a below-average volatility.
What this means for you:
MONT may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as MONT is valuable to lower your risk of market exposure, in particular, during times of economic decline. What I have not mentioned in my article here are important company-specific fundamentals such as Montea Comm. VA’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is MONT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has MONT been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of MONT’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.