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If you are looking to invest in Camsing Healthcare Limited’s (SGX:BAC), 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. The beta measures BAC’s exposure to the wider market risk, which reflects changes in economic and political factors. 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.
See our latest analysis for Camsing Healthcare
What is BAC’s market risk?
With a beta of 1.26, Camsing Healthcare is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. According to this value of beta, BAC will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
Does BAC’s size and industry impact the expected beta?
A market capitalisation of S$26.10M puts BAC in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the retail distributors industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect higher beta for small-cap stocks in a cyclical industry compared to larger stocks in a defensive industry. This is consistent with BAC’s individual beta value we discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Can BAC’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 BAC’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. BAC’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. Thus, we can expect BAC 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. Similarly, BAC’s beta value conveys the same message.