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If you are a shareholder in Glowpoint Inc’s (AMEX:GLOW), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of 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. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta 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.
View our latest analysis for Glowpoint
What is GLOW’s market risk?
With a five-year beta of 0.49, Glowpoint appears to be a less volatile company compared to the rest of the 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. GLOW’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 GLOW’s size and industry impact the expected beta?
With a market cap of US$8.72M, GLOW falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, GLOW also operates in the internet 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 internet industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both GLOW’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.
Can GLOW’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 GLOW’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, GLOW doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect GLOW to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. This is consistent with is current beta value which also indicates low volatility.