If you are a shareholder in Navigator Equity Solutions SE’s (BST:NUQA), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Generally, an investor should consider two types of risk that impact the market value of NUQA. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as NUQA, 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 popular measure of market risk for a stock is its beta, and the market as a whole 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.View out our latest analysis for Navigator Equity Solutions
What is NUQA’s market risk?
With a five-year beta of 0.82, Navigator Equity Solutions appears to be a less volatile company compared to the rest of the market. This means that the change in NUQA’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, NUQA 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 NUQA’s size and industry impact its risk?
NUQA, with its market capitalisation of €6.96m, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, NUQA’s industry, capital markets, 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 capital markets industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both NUQA’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can NUQA’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 examine NUQA’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, NUQA doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect NUQA 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, NUQA’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 NUQA. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. In order to fully understand whether NUQA is a good investment for you, we also need to consider important company-specific fundamentals such as Navigator Equity Solutions’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for NUQA’s future growth? Take a look at our free research report of analyst consensus for NUQA’s outlook.
- Past Track Record: Has NUQA 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 NUQA’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.