For Crowdspark Limited’s (ASX:CSK) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. CSK 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 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.

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An interpretation of CSK’s beta

Crowdspark’s beta of 0.03 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in CSK’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. CSK’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.

Does CSK’s size and industry impact the expected beta?

A market capitalisation of AU$2.85M puts CSK in the category of small-cap stocks, which tends to possess higher beta than larger companies. Conversely, the company operates in the media industry, which has been found to have low sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap CSK but a low beta for the media industry. It seems as though there is an inconsistency in risks from CSK’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Is CSK’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 CSK’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given that fixed assets make up an insignificant portion of total assets, CSK doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect CSK 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, CSK’s beta value conveys the same message.