In This Article:
If you are a shareholder in Global Yellow Pages Limited’s (SGX:AWS), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures AWS’s exposure to the wider market risk, which reflects changes in economic and political factors. 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 considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
See our latest analysis for Global Yellow Pages
An interpretation of AWS’s beta
Global Yellow Pages’s five-year beta of 1.39 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. According to this value of beta, AWS can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Does AWS’s size and industry impact the expected beta?
With a market cap of S$36.17M, AWS falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Conversely, the company operates in the consumer retailing 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 AWS but a low beta for the consumer retailing industry. It seems as though there is an inconsistency in risks from AWS’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can AWS’s asset-composition point to a higher 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 AWS’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, AWS seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect AWS 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. However, this is the opposite to what AWS’s actual beta value suggests, which is higher stock volatility relative to the market.