If you are a shareholder in Budapesti Ingatlan Hasznosítási és Fejlesztési Nyrt’s (BUSE:BIF), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Broadly speaking, there are two types of risk you should consider when investing in stocks such as BIF. 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 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 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 Budapesti Ingatlan Hasznosítási és Fejlesztési Nyrt
An interpretation of BIF’s beta
Budapesti Ingatlan Hasznosítási és Fejlesztési Nyrt’s beta of 0.4 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in BIF’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. BIF’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.
Could BIF’s size and industry cause it to be more volatile?
With a market cap of FT48.38B, BIF falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Furthermore, the company operates in the real estate industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the real estate industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by BIF’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.
How BIF’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 BIF’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, BIF doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect BIF 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 could benefit from lower risk during times of economic decline by holding onto BIF. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. What I have not mentioned in my article here are important company-specific fundamentals such as Budapesti Ingatlan Hasznosítási és Fejlesztési Nyrt’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 BIF’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.