If you are looking to invest in Celebrate International Holdings Limited’s (SEHK:8212), 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. 8212 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 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 considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.

Check out our latest analysis for Celebrate International Holdings

What does 8212’s beta value mean?

Celebrate International Holdings’s five-year beta of 3.16 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, 8212 may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.

Could 8212’s size and industry cause it to be more volatile?

With a market cap of HKD HK$296.00M, 8212 falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, 8212 operates in the consumer retailing industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of 8212, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from 8212’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.

Is 8212’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 examine 8212’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since 8212’s fixed assets are only 2.03% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect 8212 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. This outcome contradicts 8212’s current beta value which indicates an above-average volatility.