If you are a shareholder in Bailador Technology Investments Limited’s (ASX:BTI), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures BTI’s exposure to the wider market risk, which reflects changes in economic and political factors. Not every stock is exposed to the same level of market risk, and the market as a whole represents a beta 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.

Check out our latest analysis for Bailador Technology Investments

What does BTI’s beta value mean?

With a five-year beta of 0.15, Bailador Technology Investments 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. BTI’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.

How does BTI’s size and industry impact its risk?

A market capitalisation of AU$93.79M puts BTI in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, BTI’s industry, capital markets, 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 capital markets industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by BTI’s size and industry relative to its actual beta value.

Can BTI’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 test BTI’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given that fixed assets make up an insignificant portion of total assets, BTI doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. 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. Similarly, BTI’s beta value conveys the same message.