Before You Buy Goodman Property Trust's (NZE:GMT), Consider This

If you are looking to invest in Goodman Property Trust’s (NZSE:GMT), 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 GMT. 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 every stock is exposed to the same level of market risk. The most widely used metric to quantify a stock's market risk is beta, and the market as a whole represents a beta 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.

What is GMT’s market risk?

Goodman Property Trust's beta of 0.33 indicates that the stock value will be less variable compared to the whole stock market. 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. GMT’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.

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

A market capitalisation of NZ$1.75B puts GMT in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the reits industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap GMT but a low beta for the reits industry. It seems as though there is an inconsistency in risks portrayed by GMT’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

How GMT's assets could affect its 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 examine GMT’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. GMT'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 GMT 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 GMT’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 GMT. 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, GMT may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether GMT is a good investment for you, we also need to consider important company-specific fundamentals such as Goodman Property Trust’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:

1. Future Outlook: What are well-informed industry analysts predicting for GMT’s future growth? Take a look at our free research report of analyst consensus for GMT’s outlook.
2. Past Track Record: Has GMT 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 GMT'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.