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For elexxion AG’s (XTRA:E8X) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole 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 elexxion
What does E8X’s beta value mean?
elexxion’s beta of 0.85 indicates that the stock value will be less variable compared to the whole stock market. 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. E8X’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.
Does E8X’s size and industry impact the expected beta?
E8X, with its market capitalisation of €5.85M, is a small-cap stock, which generally have higher beta than similar companies of larger size. But, E8X’s industry, medical equipment, is considered to be defensive, which means it is less volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap E8X but a low beta for the medical equipment industry. It seems as though there is an inconsistency in risks from E8X’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can E8X’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 test E8X’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. E8X’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. As a result, this aspect of E8X indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts E8X’s current beta value which indicates a below-average volatility.