If you are looking to invest in magicJack VocalTec Ltd’s (NASDAQ:CALL), 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. CALL 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. 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 magicJack VocalTec

What is CALL’s market risk?

With a five-year beta of 0.83, magicJack VocalTec appears to be a less volatile company compared to the rest of the market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. Based on this beta value, CALL appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.

How does CALL’s size and industry impact its risk?

With a market cap of US$135.18M, CALL falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. But, CALL’s industry, telecom, is considered to be defensive, which means it is less volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap CALL but a low beta for the telecom industry. This is an interesting conclusion, since its size suggests CALL 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.

Is CALL’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 CALL’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, CALL seems to have a smaller dependency on fixed costs to generate revenue. 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. Similarly, CALL’s beta value conveys the same message.