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If you are looking to invest in Wereldhave Belgium’s (ENXTBR:WEHB), 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 WEHB’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 broad market index represents a beta value of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
View our latest analysis for Wereldhave Belgium
An interpretation of WEHB’s beta
Wereldhave Belgium’s beta of 0.24 indicates that the stock value will be less variable compared to the whole stock market. 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, WEHB appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does WEHB’s size and industry impact the expected beta?
With a market cap of €659.21M, WEHB falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, WEHB’s industry, reits, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap WEHB but a low beta for the reits industry. It seems as though there is an inconsistency in risks portrayed by WEHB’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Is WEHB’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 test WEHB’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, WEHB 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 WEHB indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts WEHB’s current beta value which indicates a below-average volatility.