If you are looking to invest in Gentor Resources Inc’s (TSXV:GNT), 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 GNT. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as GNT, because it is rare that an entire industry collapses at once. 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 every stock is exposed to the same level of market risk. A widely-used metric to measure a stock’s market risk is beta, and the broad market index represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.Check out our latest analysis for Gentor Resources
What does GNT’s beta value mean?
Gentor Resources’s five-year beta of 2.65 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. According to this value of beta, GNT may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.
How does GNT’s size and industry impact its risk?
GNT, with its market capitalisation of CA$1.97M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the metals and mining industry, which has been found to have high sensitivity to market-wide shocks. So, investors should expect a larger beta for smaller companies operating in a cyclical industry in contrast with lower beta for larger firms in a more defensive industry. This supports our interpretation of GNT’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Can GNT’s asset-composition point to a higher beta?
During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I test GNT’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since GNT’s fixed assets are only 1.09% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. However, this is the opposite to what GNT’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
You could benefit from higher returns during times of economic growth by holding onto GNT. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. In order to fully understand whether GNT is a good investment for you, we also need to consider important company-specific fundamentals such as Gentor Resources’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Financial Health: Is GNT’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 GNT 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 GNT’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.