If you are looking to invest in JBF Industries Limited’s (NSEI:JBFIND), 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. There are two types of risks that affect the market value of a listed company such as JBFIND. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as JBFIND, because it is rare that an entire industry collapses at once. 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.
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 considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.See our latest analysis for JBF Industries
What does JBFIND’s beta value mean?
With a five-year beta of 0.39, JBF Industries appears to be a less volatile company compared to the rest of the market. 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. JBFIND’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 JBFIND’s size and industry cause it to be more volatile?
With a market cap of ₹12.22B, JBFIND falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, JBFIND also operates in the luxury industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the luxury industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both JBFIND’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 JBFIND’s asset-composition point to a higher beta?
An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I examine JBFIND’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%, JBFIND 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 JBFIND indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what JBFIND’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto JBFIND. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, JBFIND may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether JBFIND is a good investment for you, we also need to consider important company-specific fundamentals such as JBF Industries’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Financial Health: Is JBFIND’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 JBFIND 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 JBFIND’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.