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If you are looking to invest in Mera SA.’s (WSE:MER), 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. MER 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 all stocks are expose 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.
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What is MER’s market risk?
Mera’s beta of 0.57 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. MER’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 MER’s size and industry impact the expected beta?
MER, with its market capitalisation of ZŁ11.30M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, MER also operates in the building industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the building industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both MER’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 MER’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 examine MER’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%, MER appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect MER 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. This outcome contradicts MER’s current beta value which indicates a below-average volatility.