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For Jenson & Nicholson (India) Limited’s (NSEI:JENSONICOL) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures JENSONICOL’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 market as a whole 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.
See our latest analysis for Jenson & Nicholson (India)
What does JENSONICOL’s beta value mean?
Jenson & Nicholson (India)’s beta of 0.17 indicates that the company is less volatile relative to the diversified market portfolio. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. JENSONICOL’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Could JENSONICOL’s size and industry cause it to be more volatile?
JENSONICOL, with its market capitalisation of ₹119.76M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, JENSONICOL also operates in the chemicals industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap JENSONICOL but a low beta for the chemicals industry. This is an interesting conclusion, since both JENSONICOL’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can JENSONICOL’s asset-composition point to a higher 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 examine JENSONICOL’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, JENSONICOL 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 JENSONICOL indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what JENSONICOL’s actual beta value suggests, which is lower stock volatility relative to the market.