Stock Analysis

Does Infomedia Press Limited (NSE:INFOMEDIA) Go Up With The Market?

NSEI:INFOMEDIA
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If you are a shareholder in Infomedia Press Limited’s (NSEI:INFOMEDIA), 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 INFOMEDIA. 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 risk is market-wide, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks.

Not all stocks are expose to the same level of market risk. A widely-used metric to measure a stock's market risk is beta, and the broad market index represents a beta value 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.

Check out our latest analysis for Infomedia Press

What is INFOMEDIA’s market risk?

With a five-year beta of 0.25, Infomedia Press 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. INFOMEDIA'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.

NSEI:INFOMEDIA Income Statement Mar 24th 18
NSEI:INFOMEDIA Income Statement Mar 24th 18

Does INFOMEDIA's size and industry impact the expected beta?

A market capitalisation of ₹155.60M puts INFOMEDIA in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, INFOMEDIA’s industry, commercial services, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap INFOMEDIA but a low beta for the commercial services industry. It seems as though there is an inconsistency in risks portrayed by INFOMEDIA’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.

How INFOMEDIA'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 INFOMEDIA’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 INFOMEDIA’s fixed assets are only 3.68% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. 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, INFOMEDIA’s beta value conveys the same message.

What this means for you:

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

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.