For Cesar SA’s (ENXTPA:ALCES) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Generally, an investor should consider two types of risk that impact the market value of ALCES. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as ALCES, 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.
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 Cesar
An interpretation of ALCES’s beta
With a beta of 1.07, Cesar is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. Based on this beta value, ALCES can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Could ALCES’s size and industry cause it to be more volatile?
ALCES, with its market capitalisation of €897.68K, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the leisure 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 is consistent with ALCES’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Can ALCES’s asset-composition point to a higher 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 examine ALCES’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, ALCES seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect ALCES 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. However, this is the opposite to what ALCES’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
You may reap the gains of ALCES’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into ALCES. What I have not mentioned in my article here are important company-specific fundamentals such as Cesar’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Financial Health: Is ALCES’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 ALCES 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 ALCES’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.