For Strabag SE’s (WBAG:STR) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures STR’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels 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.
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An interpretation of STR’s beta
With a five-year beta of 0.79, Strabag appears to be a less volatile company compared to the rest of the market. This means that the change in STR’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. STR’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.
Could STR’s size and industry cause it to be more volatile?
STR has a market capitalization of €3.61B, putting it in the category of established companies, which are found to experience less relative risk compared to small-sized companies. But, STR’s industry, construction, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a low beta for the large-cap nature of STR but a higher beta for the construction industry. This is an interesting conclusion, since its industry suggests STR should be more volatile than it actually is. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How STR’s assets could affect its 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 STR’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since STR’s fixed assets are only 24.83% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This is consistent with is current beta value which also indicates low volatility.