If you are looking to invest in Reinet Investments SC.A.’s (BDL:REINI), 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. Generally, an investor should consider two types of risk that impact the market value of REINI. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as REINI, because it is rare that an entire industry collapses at once. 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.
Different characteristics of a stock expose it to various levels 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.Check out our latest analysis for Reinet Investments S.C.A
What is REINI’s market risk?
Reinet Investments S.C.A’s beta of 0.28 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in REINI’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. REINI’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.
Does REINI’s size and industry impact the expected beta?
A market capitalisation of €3.00B puts REINI in the basket of established companies, which is not a guarantee of low relative risk, though they do tend to experience a lower level of relative risk compared to smaller entities. However, REINI operates in the capital markets industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a low beta for the large-cap nature of REINI but a higher beta for the capital markets industry. This is an interesting conclusion, since its industry suggests REINI should be more volatile than it actually is.
Is REINI’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 REINI’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 is virtually non-existent in REINI’s operations, it has low dependency on fixed costs to generate revenue. Thus, we can expect REINI to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
REINI may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as REINI is valuable to lower your risk of market exposure, in particular, during times of economic decline. What I have not mentioned in my article here are important company-specific fundamentals such as Reinet Investments S.C.A’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for REINI’s future growth? Take a look at our free research report of analyst consensus for REINI’s outlook.
- Past Track Record: Has REINI 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 REINI’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.