What Kind Of Risk Should You Expect For Navigator Equity Solutions SE (BST:NUQA)?

If you are looking to invest in Navigator Equity Solutions SE’s (BST:NUQA), 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. Broadly speaking, there are two types of risk you should consider when investing in stocks such as 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 type is market risk, one that you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks in the market.

Different characteristics of a stock expose it to various levels 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.

View our latest analysis for Navigator Equity Solutions

What does NUQA’s beta value mean?

Navigator Equity Solutions’s beta of 0.55 indicates that the stock value will be less variable compared to the whole stock 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. NUQA’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.

BST:NUQA Income Statement Mar 12th 18
BST:NUQA Income Statement Mar 12th 18

Could NUQA’s size and industry cause it to be more volatile?

NUQA, with its market capitalisation of €6.42M, 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. As a result, we should expect a high beta for the small-cap NUQA but a low beta for the capital markets 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.

Is NUQA’s cost structure indicative of a high 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. Considering fixed assets account for less than a third of the company’s overall assets, NUQA seems to have a smaller dependency on fixed costs to generate revenue. 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:

  1. Financial Health: Is NUQA’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.
  2. 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.
  3. 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.