If you are looking to invest in Techcomp (Holdings) Limited’s (SGX:T43), 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. T43 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 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 Techcomp (Holdings)

What does T43’s beta value mean?

Techcomp (Holdings)’s five-year beta of 1.42 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. According to this value of beta, T43 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 T43’s size and industry cause it to be more volatile?

With a market cap of S$107.42M, T43 falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, T43 operates in the healthcare industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap T43 but a low beta for the healthcare industry. It seems as though there is an inconsistency in risks from T43’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

How T43’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 examine T43’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, T43 appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of T43 indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This is consistent with is current beta value which also indicates high volatility.