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If you are a shareholder in Usha Martin Education & Solutions Limited’s (NSEI:UMESLTD), 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 UMESLTD’s exposure to the wider market risk, which reflects changes in economic and political factors. 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.
Check out our latest analysis for Usha Martin Education & Solutions
What does UMESLTD’s beta value mean?
With a five-year beta of 0.43, Usha Martin Education & Solutions appears to be a less volatile company compared to the rest of the market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. UMESLTD’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.
How does UMESLTD’s size and industry impact its risk?
UMESLTD, with its market capitalisation of ₹30.38M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the consumer services industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap UMESLTD but a low beta for the consumer services industry. It seems as though there is an inconsistency in risks portrayed by UMESLTD’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.
Is UMESLTD’s cost structure indicative of a high 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 UMESLTD’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, UMESLTD doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect UMESLTD 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.