For Italmobiliare Sp.A.’s (BIT:ITM) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. 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 all stocks are expose to the same level of market risk, and the broad market index represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
See our latest analysis for Italmobiliare
What does ITM’s beta value mean?
Italmobiliare has a beta of 1.09, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. Based on this beta value, ITM will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
How does ITM’s size and industry impact its risk?
A market capitalisation of €933.23M puts ITM in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, ITM’s industry, industrials, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the industrials industry, relative to those more well-established firms in a more defensive industry. This supports our interpretation of ITM’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Can ITM’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 test ITM’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, ITM seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect ITM 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 outcome contradicts ITM’s current beta value which indicates an above-average volatility.