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For A-Sonic Aerospace Limited’s (SGX:BTJ) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. BTJ 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 broad market index 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.
View our latest analysis for A-Sonic Aerospace
What does BTJ’s beta value mean?
A-Sonic Aerospace’s beta of 0.26 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in BTJ’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. BTJ’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.
Could BTJ’s size and industry cause it to be more volatile?
BTJ, with its market capitalisation of S$11.40M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the logistics 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 logistics industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both BTJ’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can BTJ’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 test BTJ’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since BTJ’s fixed assets are only 14.99% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect BTJ 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.