Fonciere Inea SA. (EPA:INEA): What Does It Mean For Your Portfolio?

For Fonciere Inea SA.’s (ENXTPA:INEA) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Broadly speaking, there are two types of risk you should consider when investing in stocks such as INEA. The first risk to think about is company-specific, which can be diversified away by investing in other companies in order to lower your exposure to one particular stock. 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.

An interpretation of INEA’s beta

Fonciere Inea’s beta of 0.07 indicates that the company is less volatile relative to the diversified market portfolio. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. Based on this beta value, INEA 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 INEA’s size and industry impact its risk?

With a market cap of €244.08M, INEA falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, INEA’s industry, reits, 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 INEA but a low beta for the reits industry. It seems as though there is an inconsistency in risks portrayed by INEA’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.

Can INEA’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 test INEA’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, INEA appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect INEA to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. This outcome contradicts INEA’s current beta value which indicates a below-average volatility.

What this means for you:

You could benefit from lower risk during times of economic decline by holding onto INEA. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, INEA may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether INEA is a good investment for you, we also need to consider important company-specific fundamentals such as Fonciere Inea’s financial health and performance track record. I urge you to complete your research by taking a look at the following:

1. Financial Health: Is INEA’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 INEA 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 INEA’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.