If you are a shareholder in BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek SA.’s (WSE:BML), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Generally, an investor should consider two types of risk that impact the market value of BML. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as BML, because it is rare that an entire industry collapses at once. 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.
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.View our latest analysis for BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek
An interpretation of BML’s beta
BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek’s beta of 0.73 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in BML’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. BML’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 BML’s size and industry cause it to be more volatile?
A market capitalisation of ZŁ53.11M puts BML in the category of small-cap stocks, which tends to possess higher beta than larger companies. Conversely, the company operates in the biotechs industry, which has been found to have low sensitivity to market-wide shocks. Therefore, investors can expect a high beta associated with the size of BML, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from BML’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can BML’s asset-composition point to a higher 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 BML’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. BML’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 BML indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts BML’s current beta value which indicates a below-average volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto BML. 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, BML may be a valuable stock to hold onto in order to cushion the impact of a downturn. What I have not mentioned in my article here are important company-specific fundamentals such as BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is BML’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 BML 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 BML’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.