If you are looking to invest in iCollege Limited’s (ASX:ICT), 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. The beta measures ICT’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 market as a whole represents a beta value of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
See our latest analysis for ICT
What does ICT’s beta value mean?
iCollege has a beta of 1.37, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. Based on this beta value, ICT will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
How does ICT’s size and industry impact its risk?
With a market cap of AUD $7.08M, ICT falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Furthermore, the company operates in the diversified consumer services 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 diversified consumer services industry, relative to those more well-established firms in a more defensive industry. This supports our interpretation of ICT’s beta value discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Is ICT’s cost structure indicative of a high 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 ICT’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since ICT’s fixed assets are only 8.84% 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 outcome contradicts ICT’s current beta value which indicates an above-average volatility.