If you are looking to invest in Banque Profil de Gestion SA’s (SWX:BPDG), 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 BPDG’s exposure to the wider market risk, which reflects changes in economic and political factors. Not all stocks are expose to the same level of market risk, and the market as a whole 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 Banque Profil de Gestion
What does BPDG’s beta value mean?
Banque Profil de Gestion’s beta of 0.6 indicates that the company is less volatile relative to the diversified market portfolio. 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, BPDG appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could BPDG’s size and industry cause it to be more volatile?
A market capitalisation of CHF49.86M puts BPDG in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the capital markets industry, which has been found to have high sensitivity to market-wide shocks. 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. This is an interesting conclusion, since both BPDG’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 BPDG’s cost structure indicative of a high 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 BPDG’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets is virtually non-existent in BPDG’s operations, it has low dependency on fixed costs to generate revenue. Thus, we can expect BPDG to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. Similarly, BPDG’s beta value conveys the same message.