If you are a shareholder in Bioter SA.’s (ATSE:BIOT), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. BIOT is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not all stocks are expose to the same level of market risk, 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 Bioter
What is BIOT’s market risk?
Bioter’s five-year beta of 1.96 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. According to this value of beta, BIOT will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
Does BIOT’s size and industry impact the expected beta?
A market capitalisation of €1.10M puts BIOT in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, BIOT also operates in the construction industry, which has commonly demonstrated strong reactions to market-wide shocks. So, investors should expect a larger beta for smaller companies operating in a cyclical industry in contrast with lower beta for larger firms in a more defensive industry. This is consistent with BIOT’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Is BIOT’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 BIOT’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 account for less than a third of the company’s overall assets, BIOT seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect BIOT 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. However, this is the opposite to what BIOT’s actual beta value suggests, which is higher stock volatility relative to the market.