In This Article:
If you are a shareholder in Immsi Sp.A.’s (BIT:IMS), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. IMS 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 value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
See our latest analysis for Immsi
What does IMS’s beta value mean?
Immsi’s five-year beta of 1.08 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, IMS can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Does IMS’s size and industry impact the expected beta?
A market capitalisation of €214.87M puts IMS in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the auto industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the auto industry, relative to those more well-established firms in a more defensive industry. This is consistent with IMS’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
How IMS’s assets could affect its 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 IMS’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given a fixed to total assets ratio of over 30%, IMS seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. As a result, this aspect of IMS indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This is consistent with is current beta value which also indicates high volatility.