If you are looking to invest in DWS Limited’s (ASX:DWS), 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. DWS 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 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
Check out our latest analysis for DWS
An interpretation of DWS’s beta
DWS’s beta of 0.45 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in DWS’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. DWS’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.
Could DWS’s size and industry cause it to be more volatile?
DWS, with its market capitalisation of AU$212.26M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, DWS also operates in the it industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap DWS but a low beta for the it industry. This is an interesting conclusion, since both DWS’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 DWS’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 DWS’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, DWS seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect DWS 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.