If you are looking to invest in Seritage Growth Properties’s (NYSE:SRG), 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 SRG. 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 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. 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.See our latest analysis for Seritage Growth Properties
What does SRG’s beta value mean?
Seritage Growth Properties’s beta of 0.97 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in SRG’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. SRG’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.
Does SRG’s size and industry impact the expected beta?
SRG has a market capitalization of US$2.33B, putting it in the category of established companies, which are found to experience less relative risk compared to small-sized companies. Conversely, 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 low beta for the large-cap nature of SRG but a higher beta for the reits industry. This is an interesting conclusion, since its industry suggests SRG should be more volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How SRG’s assets could affect its 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 test SRG’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%, SRG appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect SRG to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. This outcome contradicts SRG’s current beta value which indicates a below-average volatility.
What this means for you:
SRG 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 SRG is valuable to lower your risk of market exposure, in particular, during times of economic decline. In order to fully understand whether SRG is a good investment for you, we also need to consider important company-specific fundamentals such as Seritage Growth Properties’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- 1. Future Outlook: What are well-informed industry analysts predicting for SRG’s future growth? Take a look at our free research report of analyst consensus for SRG’s outlook.
- 2. Financial Health: Is SRG’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.
- 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.