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If you are looking to invest in PAO Zawolzhsky Motorny Zawod’s (MISX:ZMZN), 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 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
Check out our latest analysis for PAO Zawolzhsky Motorny Zawod
What does ZMZN’s beta value mean?
PAO Zawolzhsky Motorny Zawod’s beta of 0.01 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in ZMZN’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. ZMZN’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 ZMZN’s size and industry impact its risk?
With a market cap of RUРУБ2.73B, ZMZN 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 auto components 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 auto components industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by ZMZN’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.
How ZMZN’s assets could affect its 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 examine ZMZN’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, ZMZN doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect ZMZN 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.