If you are looking to invest in Havila Shipping ASA’s (OB:HAVI), 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 HAVI. 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 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 considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.Check out our latest analysis for Havila Shipping
An interpretation of HAVI’s beta
Havila Shipping’s beta of 0.95 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. HAVI’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 HAVI’s size and industry impact its risk?
HAVI, with its market capitalisation of øre216.18m, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, HAVI also operates in the energy services 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 energy services industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by HAVI’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is HAVI’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 HAVI’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. HAVI’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. As a result, this aspect of HAVI 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 HAVI’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 HAVI. 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, HAVI may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether HAVI is a good investment for you, we also need to consider important company-specific fundamentals such as Havila Shipping’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Financial Health: Is HAVI’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 HAVI 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 HAVI’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.