For Fliway Group Limited’s (NZSE:FLI) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. 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 all stocks are expose 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.
See our latest analysis for Fliway Group
What is FLI’s market risk?
Fliway Group’s beta of 0.41 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in FLI’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. FLI’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.
How does FLI’s size and industry impact its risk?
With a market cap of NZD NZ$54.98M, FLI falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, FLI also operates in the logistics industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap FLI but a low beta for the logistics industry. This is an interesting conclusion, since both FLI’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 FLI’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 FLI’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, FLI doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect FLI 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. Similarly, FLI’s beta value conveys the same message.