If you are looking to invest in Open joint stock company Solikamsk magnesium works’s (MISX:MGNZ), 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 MGNZ. 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 all stocks are expose 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. 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.See our latest analysis for Solikamsk magnesium works
What does MGNZ’s beta value mean?
With a five-year beta of 0.04, Solikamsk magnesium works appears to be a less volatile company compared to the rest of the market. This means that the change in MGNZ’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. MGNZ’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 MGNZ’s size and industry cause it to be more volatile?
A market capitalisation of RUРУБ1.24B puts MGNZ in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, MGNZ’s industry, metals and mining, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the metals and mining industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both MGNZ’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.
Is MGNZ’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 MGNZ’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. MGNZ’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 MGNZ indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts MGNZ’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 MGNZ. 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, MGNZ may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether MGNZ is a good investment for you, we also need to consider important company-specific fundamentals such as Solikamsk magnesium works’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Financial Health: Is MGNZ’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 MGNZ 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 MGNZ’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.