If you are looking to invest in aovo Touristik AG’s (MUN:A8N), 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. Generally, an investor should consider two types of risk that impact the market value of A8N. 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 other type of risk, which cannot be diversified away, is market risk. Every stock in the market is exposed to this risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few.
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. 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.See our latest analysis for aovo Touristik
An interpretation of A8N’s beta
aovo Touristik’s beta of 0.07 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in A8N’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. Based on this beta value, A8N appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
How does A8N’s size and industry impact its risk?
With a market cap of €4.90M, A8N falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, A8N’s industry, hospitality, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap A8N but a low beta for the hospitality industry. It seems as though there is an inconsistency in risks portrayed by A8N’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 A8N’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 test A8N’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, A8N doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect A8N to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. Similarly, A8N’s beta value conveys the same message.
What this means for you:
You may reap the benefit of muted movements during times of economic decline by holding onto A8N. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. What I have not mentioned in my article here are important company-specific fundamentals such as aovo Touristik’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Past Track Record: Has A8N 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 A8N’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.