If you are looking to invest in Quintegra Solutions Limited’s (NSEI:QUINTEGRA), 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 QUINTEGRA. 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 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 Quintegra Solutions
An interpretation of QUINTEGRA’s beta
With a beta of 1.21, Quintegra Solutions is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. Based on this beta value, QUINTEGRA will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
How does QUINTEGRA’s size and industry impact its risk?
A market capitalisation of ₹17.97M puts QUINTEGRA in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the it industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect higher beta for small-cap stocks in a cyclical industry compared to larger stocks in a defensive industry. This is consistent with QUINTEGRA’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
How QUINTEGRA’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 test QUINTEGRA’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given a fixed to total assets ratio of over 30%, QUINTEGRA seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. Thus, we can expect QUINTEGRA to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. This is consistent with is current beta value which also indicates high volatility.
What this means for you:
You may reap the gains of QUINTEGRA’s returns in times of an economic boom. Though the business does have higher fixed cost than what is considered safe, during times of growth, consumer demand may be high enough to not warrant immediate concerns. However, during a downturn, a more defensive stock can cushion the impact of this risk. What I have not mentioned in my article here are important company-specific fundamentals such as Quintegra Solutions’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 QUINTEGRA’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 QUINTEGRA 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 QUINTEGRA’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.