If you are looking to invest in Future Enterprises Limited’s (NSEI:FELDVR), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. Broadly speaking, there are two types of risk you should consider when investing in stocks such as FELDVR. 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 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 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. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.View our latest analysis for Future Enterprises
What is FELDVR’s market risk?
Future Enterprises’s beta of 0.72 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in FELDVR’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. Based on this beta value, FELDVR appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does FELDVR’s size and industry impact the expected beta?
With a market cap of ₹20.46B, FELDVR 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 industrials industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap FELDVR but a low beta for the industrials industry. This is an interesting conclusion, since both FELDVR’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can FELDVR’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 examine FELDVR’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 a fixed to total assets ratio of over 30%, FELDVR seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. As a result, this aspect of FELDVR indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts FELDVR’s current beta value which indicates a below-average volatility.
What this means for you:
FELDVR may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as FELDVR is valuable to lower your risk of market exposure, in particular, during times of economic decline. What I have not mentioned in my article here are important company-specific fundamentals such as Future Enterprises’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Financial Health: Is FELDVR’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 FELDVR 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 FELDVR’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.