If you are looking to invest in Dateline Resources Limited’s (ASX:DTR), 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. Different characteristics of a stock expose it to various levels 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.
Check out our latest analysis for Dateline Resources
What is DTR’s market risk?
With a five-year beta of 0.32, Dateline Resources appears to be a less volatile company compared to the rest of the market. This means that the change in DTR’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. DTR’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 DTR’s size and industry impact its risk?
DTR, with its market capitalisation of AUD A$18.91M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the metals and mining industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap DTR but a low beta for the metals and mining industry. It seems as though there is an inconsistency in risks portrayed by DTR’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How DTR’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 examine DTR’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, DTR appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of DTR 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 DTR’s actual beta value suggests, which is lower stock volatility relative to the market.