If you are looking to invest in Qt Group Oyj’s (HLSE:QTCOM), 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 QTCOM. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as QTCOM, 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. 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 considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.View our latest analysis for Qt Group Oyj
What does QTCOM’s beta value mean?
Qt Group Oyj’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 QTCOM’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. QTCOM’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
How does QTCOM’s size and industry impact its risk?
QTCOM, with its market capitalisation of €163.69M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, QTCOM’s industry, software, 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 software industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both QTCOM’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is QTCOM’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 QTCOM’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since QTCOM’s fixed assets are only 3.13% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect QTCOM 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, QTCOM’s beta value conveys the same message.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto QTCOM. 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 QTCOM is a good investment for you, we also need to consider important company-specific fundamentals such as Qt Group Oyj’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 QTCOM’s future growth? Take a look at our free research report of analyst consensus for QTCOM’s outlook.
- Financial Health: Is QTCOM’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.
- 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.