If you are looking to invest in Immedia Group Plc’s (AIM:IME), 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. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Not all stocks are expose 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 Immedia Group
An interpretation of IME’s beta
Immedia Group’s beta of 0.4 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in IME’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. Based on this beta value, IME appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does IME’s size and industry impact the expected beta?
With a market cap of UK£2.74M, IME falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. But, IME’s industry, media, is considered to be defensive, which means it is less volatile than the market over the economic cycle. Therefore, investors can expect a high beta associated with the size of IME, but a lower beta given the nature of the industry it operates in. This is an interesting conclusion, since its size suggests IME should be more volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can IME’s asset-composition point to a higher 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 IME’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since IME’s fixed assets are only 22.15% 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.