If you are looking to invest in JBF Industries Limited’s (NSEI:JBFIND), 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 JBFIND’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.

See our latest analysis for JBF Industries

What does JBFIND’s beta value mean?

JBF Industries’s beta of 0.44 indicates that the company is less volatile relative to the diversified market portfolio. 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, JBFIND appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.

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

JBFIND, with its market capitalisation of ₹11.47B, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, JBFIND also operates in the luxury industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap JBFIND but a low beta for the luxury industry. This is an interesting conclusion, since both JBFIND’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Is JBFIND’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 JBFIND’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%, JBFIND seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. Thus, we can expect JBFIND to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. However, this is the opposite to what JBFIND’s actual beta value suggests, which is lower stock volatility relative to the market.