If you are a shareholder in Altice NV.’s (ENXTAM:ATC), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Broadly speaking, there are two types of risk you should consider when investing in stocks such as ATC. 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 type is market risk, one that you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks in the market.
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.Check out our latest analysis for Altice
An interpretation of ATC’s beta
With a five-year beta of 0.98, Altice appears to be a less volatile company compared to the rest of the market. This means that the change in ATC’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. Based on this beta value, ATC appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does ATC’s size and industry impact the expected beta?
With a market capitalisation of €3.44B, ATC is considered an established entity, which has generally experienced less relative risk in comparison to smaller sized companies. In addition to size, ATC also operates in the media industry, which has commonly demonstrated muted reactions to market-wide shocks. Hence, investors should expect a lower beta for larger companies operating in a defensive industry in contrast with higher beta for smaller firms in a more cyclical industry. This is consistent with ATC’s individual beta value we discussed above. Next, we will examine the fundamental factors which can result in a more defensive nature of a stock.
Is ATC’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 examine ATC’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, ATC seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect ATC 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. Similarly, ATC’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 ATC. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. What I have not mentioned in my article here are important company-specific fundamentals such as Altice’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for ATC’s future growth? Take a look at our free research report of analyst consensus for ATC’s outlook.
- Past Track Record: Has ATC 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 ATC’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.