Can Moa Group Limited (NZE:MOA) Improve Your Portfolio Returns?

For Moa Group Limited’s (NZSE:MOA) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. There are two types of risks that affect the market value of a listed company such as MOA. 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 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 widely-used metric to measure a stock's market risk is beta, and the broad market index represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.

What does MOA's beta value mean?

Moa Group’s beta of 0.43 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in MOA'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, MOA appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.

Could MOA's size and industry cause it to be more volatile?

MOA, with its market capitalisation of NZ$27.87M, is a small-cap stock, which generally have higher beta than similar companies of larger size. But, MOA’s industry, beverage, 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 MOA but a low beta for the beverage industry. It seems as though there is an inconsistency in risks from MOA’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Is MOA's cost structure indicative of a high 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 test MOA’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, MOA appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of MOA 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 MOA’s actual beta value suggests, which is lower stock volatility relative to the market.

What this means for you:

MOA 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 MOA is valuable to lower your risk of market exposure, in particular, during times of economic decline. In order to fully understand whether MOA is a good investment for you, we also need to consider important company-specific fundamentals such as Moa Group’s financial health and performance track record. I urge you to complete your research by taking a look at the following:

• 1. Financial Health: Is MOA’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.
• 2. Past Track Record: Has MOA 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 MOA's historicals for more clarity.
• 3. 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.