If you are a shareholder in GIR Natureview Resorts Limited’s (NSEI:GIRRESORTS), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Generally, an investor should consider two types of risk that impact the market value of GIRRESORTS. 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.View our latest analysis for GIR Natureview Resorts
An interpretation of GIRRESORTS’s beta
With a five-year beta of 0.63, GIR Natureview Resorts appears to be a less volatile company compared to the rest of the market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. GIRRESORTS’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Does GIRRESORTS’s size and industry impact the expected beta?
A market capitalisation of ₹1.88B puts GIRRESORTS in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the commercial services 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 GIRRESORTS but a low beta for the commercial services industry. It seems as though there is an inconsistency in risks portrayed by GIRRESORTS’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.
Is GIRRESORTS’s cost structure indicative of a high 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 GIRRESORTS’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, GIRRESORTS seems to have a smaller dependency on fixed costs to generate revenue. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. Similarly, GIRRESORTS’s beta value conveys the same message.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto GIRRESORTS. 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 GIR Natureview Resorts’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 GIRRESORTS’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.