If you are looking to invest in ICT Group NV.’s (ENXTAM:ICT), 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 ICT’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. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
View our latest analysis for ICT Group
What does ICT’s beta value mean?
With a five-year beta of 0.23, ICT Group appears to be a less volatile company compared to the rest of the market. This means that the change in ICT’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. ICT’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 ICT’s size and industry impact the expected beta?
A market capitalisation of €140.23M puts ICT in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, ICT’s industry, software, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the software industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by ICT’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How ICT’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 ICT’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since ICT’s fixed assets are only 3.57% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. Similarly, ICT’s beta value conveys the same message.