If you are looking to invest in Altyn Plc’s (LSE:ALTN), 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. The beta measures ALTN’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels of market risk, and the broad market index 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 ALTN
What does ALTN’s beta value mean?
With a five-year beta of 0.18, Altyn appears to be a less volatile company compared to the rest of the market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. Based on this beta value, ALTN 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 ALTN’s size and industry impact its risk?
A market capitalisation of GBP £30.58M puts ALTN in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the metals and mining 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 ALTN but a low beta for the metals and mining industry. It seems as though there is an inconsistency in risks portrayed by ALTN’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can ALTN’s asset-composition point to a higher 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 ALTN’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, ALTN appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of ALTN indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts ALTN’s current beta value which indicates a below-average volatility.