For Jubilee Platinum Plc’s (AIM:JLP) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures JLP’s exposure to the wider market risk, which reflects changes in economic and political factors. 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.
Check out our latest analysis for Jubilee Platinum
An interpretation of JLP's beta
With a beta of 1.07, Jubilee Platinum 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. Based on this beta value, JLP can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Could JLP's size and industry cause it to be more volatile?
With a market cap of GBP £49.77M, JLP falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, JLP’s industry, metals and mining, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. So, investors should expect a larger beta for smaller companies operating in a cyclical industry in contrast with lower beta for larger firms in a more defensive industry. This supports our interpretation of JLP’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
How JLP'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 JLP’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, JLP doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect JLP 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 outcome contradicts JLP’s current beta value which indicates an above-average volatility.