What Kind Of Risk And Return Should You Expect For China 33 Media Group Limited (HKG:8087)?

For China 33 Media Group Limited’s (SEHK:8087) 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 8087. 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.

Not all stocks are expose to the same level of market risk. A popular measure of market risk for a stock is its beta, and the market as a whole represents a beta value 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 China 33 Media Group

An interpretation of 8087’s beta

China 33 Media Group’s beta of 0.9 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. 8087’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.

SEHK:8087 Income Statement Feb 7th 18
SEHK:8087 Income Statement Feb 7th 18

Could 8087’s size and industry cause it to be more volatile?

With a market cap of HK$161.28M, 8087 falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, 8087 operates in the media industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of 8087, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from 8087’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

How 8087’s assets could affect its 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 8087’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 8087’s fixed assets are only 4.33% 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 8087 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 is consistent with is current beta value which also indicates low volatility.

What this means for you:

You may reap the benefit of muted movements during times of economic decline by holding onto 8087. 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 8087 is a good investment for you, we also need to consider important company-specific fundamentals such as China 33 Media Group’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 8087’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 8087 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 8087’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.