For TROC DE L’ILE SA’s (ENXTPA:MLTRO) 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 MLTRO. The first type is company-specific risk, which can be diversified away by investing in other companies to reduce exposure to one particular stock. The other type of risk, which cannot be diversified away, is market risk. Every stock in the market is exposed to this risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few.
Not every stock is exposed to the same level 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. 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 TROC DE L’ILE
What is MLTRO’s market risk?
TROC DE L’ILE’s five-year beta of 1.06 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. Based on this beta value, MLTRO will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
Does MLTRO’s size and industry impact the expected beta?
With a market cap of €3.20M, MLTRO falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, MLTRO also operates in the specialty retail industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the specialty retail industry, relative to those more well-established firms in a more defensive industry. This supports our interpretation of MLTRO’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
How MLTRO’s assets could affect its 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 test MLTRO’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since MLTRO’s fixed assets are only 8.15% 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 MLTRO 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. This outcome contradicts MLTRO’s current beta value which indicates an above-average volatility.
What this means for you:
You could benefit from higher returns during times of economic growth by holding onto MLTRO. 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 MLTRO is a good investment for you, we also need to consider important company-specific fundamentals such as TROC DE L’ILE’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is MLTRO’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.