If you are looking to invest in Broadway Gold Mining Ltd’s (TSXV:BRD), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. There are two types of risks that affect the market value of a listed company such as BRD. 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.
Different characteristics of a stock expose it to various levels 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.View our latest analysis for Broadway Gold Mining
What does BRD’s beta value mean?
Broadway Gold Mining’s beta of 0.32 indicates that the stock value will be less variable compared to the whole stock market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. BRD’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.
How does BRD’s size and industry impact its risk?
BRD, with its market capitalisation of CA$6.74M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, BRD also operates in the metals and mining industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap BRD but a low beta for the metals and mining industry. It seems as though there is an inconsistency in risks portrayed by BRD’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.
Is BRD’s cost structure indicative of a high 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 test BRD’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, BRD 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 BRD indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts BRD’s current beta value which indicates a below-average volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto BRD. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, BRD may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether BRD is a good investment for you, we also need to consider important company-specific fundamentals such as Broadway Gold Mining’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 BRD’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 BRD 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 BRD’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.