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If you are looking to invest in Public joint-stock company Chelyabinsk Energy Retail Company’s (MISX:CLSB), 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. 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 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.
Check out our latest analysis for Chelyabinsk Energy Retail
What does CLSB’s beta value mean?
Chelyabinsk Energy Retail’s beta of 0.19 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. CLSB’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 CLSB’s size and industry impact the expected beta?
With a market cap of RUРУБ623.99M, CLSB falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, CLSB operates in the electric utilities industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap CLSB but a low beta for the electric utilities industry. It seems as though there is an inconsistency in risks from CLSB’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How CLSB’s assets could affect its 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 CLSB’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, CLSB doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect CLSB 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.