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If you are a shareholder in Public Joint Stock Company “SAFMAR Financial investment”’s (MISX:SFIN), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures SFIN’s exposure to the wider market risk, which reflects changes in economic and political factors. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta 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.
View our latest analysis for SAFMAR Financial investment
What is SFIN’s market risk?
SAFMAR Financial investment’s beta of 0.34 indicates that the company is less volatile relative to the diversified market portfolio. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. Based on this beta value, SFIN appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could SFIN’s size and industry cause it to be more volatile?
SFIN, with its market capitalisation of RUРУБ83.88B, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the consumer finance industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the consumer finance 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 SFIN’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How SFIN’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 test SFIN’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets is virtually non-existent in SFIN’s operations, it has low dependency on fixed costs to generate revenue. Thus, we can expect SFIN 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 is consistent with is current beta value which also indicates low volatility.