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If you are looking to invest in PJSC Russian Aquaculture’s (MISX:AQUA), 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. AQUA 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. 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 PJSC Russian Aquaculture
What does AQUA’s beta value mean?
PJSC Russian Aquaculture’s beta of 0.16 indicates that the company is less volatile relative to the diversified market portfolio. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. AQUA’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.
How does AQUA’s size and industry impact its risk?
A market capitalisation of RUРУБ14.45B puts AQUA in the category of small-cap stocks, which tends to possess higher beta than larger companies. Conversely, the company operates in the food industry, which has been found to have low sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap AQUA but a low beta for the food industry. It seems as though there is an inconsistency in risks from AQUA’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can AQUA’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 examine AQUA’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 a fixed to total assets ratio of over 30%, AQUA seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. Thus, we can expect AQUA 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. However, this is the opposite to what AQUA’s actual beta value suggests, which is lower stock volatility relative to the market.