If you are looking to invest in Public Joint Stock Company Multisistema’s (MISX:MSST), 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. There are two types of risks that affect the market value of a listed company such as MSST. 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 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 widely-used metric to measure a stock’s market risk is beta, and the broad market index 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 Multisistema
What does MSST’s beta value mean?
Multisistema’s beta of 0.1 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. Based on this beta value, MSST appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
How does MSST’s size and industry impact its risk?
A market capitalisation of RUРУБ54.50M puts MSST in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the commercial services 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 MSST but a low beta for the commercial services industry. This is an interesting conclusion, since both MSST’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How MSST’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 test MSST’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since MSST’s fixed assets are only 18.25% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto MSST. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. What I have not mentioned in my article here are important company-specific fundamentals such as Multisistema’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 MSST’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 MSST 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 MSST’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.