If you are looking to invest in BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek SA.’s (WSE:BML), 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 BML’s exposure to the wider market risk, which reflects changes in economic and political factors. 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
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An interpretation of BML’s beta
BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek’s beta of 0.73 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in BML’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. BML’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
How does BML’s size and industry impact its risk?
BML, with its market capitalisation of ZŁ56.65M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Conversely, the company operates in the biotechs industry, which has been found to have low sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap BML but a low beta for the biotechs industry. It seems as though there is an inconsistency in risks from BML’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How BML’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 test BML’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given a fixed to total assets ratio of over 30%, BML seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. As a result, this aspect of BML indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what BML’s actual beta value suggests, which is lower stock volatility relative to the market.