If you are looking to invest in Blind Creek Resources Ltd’s (TSXV:BCK), 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. BCK 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. Different characteristics of a stock expose it to various levels 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.
See our latest analysis for BCK
An interpretation of BCK’s beta
Blind Creek Resources’s five-year beta of 3.28 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. Based on this beta value, BCK 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.
Could BCK’s size and industry cause it to be more volatile?
A market capitalisation of CAD CA$4.83M puts BCK in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, BCK also operates in the metals and mining 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 supports our interpretation of BCK’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Is BCK’s cost structure indicative of a high 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 BCK’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. BCK’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. As a result, this aspect of BCK indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, BCK’s beta value conveys the same message.