If you are a shareholder in Elviemek Land Development – Logistics Parks – Energy – Recycling SA.’s (ATSE:ELBIO), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. ELBIO 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. Not every stock is exposed 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.
Check out our latest analysis for Elviemek Land Development – Logistics Parks – Energy – Recycling
An interpretation of ELBIO’s beta
With a beta of 1.81, Elviemek Land Development – Logistics Parks – Energy – Recycling 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, ELBIO may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.
Could ELBIO’s size and industry cause it to be more volatile?
With a market cap of €33.30M, ELBIO falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, ELBIO also operates in the real estate industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the real estate industry, relative to those more well-established firms in a more defensive industry. This is consistent with ELBIO’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 ELBIO’s asset-composition point to a higher beta?
An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I examine ELBIO’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%, ELBIO 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 ELBIO 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, ELBIO’s beta value conveys the same message.