If you are looking to invest in Krebs Biochemicals & Industries Limited’s (NSEI:KREBSBIO), 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 KREBSBIO. 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 every stock is exposed 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.View our latest analysis for Krebs Biochemicals & Industries
What is KREBSBIO’s market risk?
Krebs Biochemicals & Industries’s beta of 0.4 indicates that the company is less volatile relative to the diversified market portfolio. 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. KREBSBIO’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.
How does KREBSBIO’s size and industry impact its risk?
KREBSBIO, with its market capitalisation of ₹2.22B, is a small-cap stock, which generally have higher beta than similar companies of larger size. But, KREBSBIO’s industry, pharmaceuticals, is considered to be defensive, which means it is less volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap KREBSBIO but a low beta for the pharmaceuticals industry. This is an interesting conclusion, since its size suggests KREBSBIO should be more volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How KREBSBIO’s assets could affect its 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 KREBSBIO’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%, KREBSBIO 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 KREBSBIO 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 KREBSBIO’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 KREBSBIO. 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, KREBSBIO may be a valuable stock to hold onto in order to cushion the impact of a downturn. What I have not mentioned in my article here are important company-specific fundamentals such as Krebs Biochemicals & 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 KREBSBIO’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 KREBSBIO 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 KREBSBIO’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.