For SUTL Enterprise Limited’s (SGX:BHU) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures BHU’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. 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.
Check out our latest analysis for SUTL Enterprise
What does BHU’s beta value mean?
SUTL Enterprise’s beta of 0.19 indicates that the stock value will be less variable compared to the whole stock market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. BHU’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.
Could BHU’s size and industry cause it to be more volatile?
With a market cap of S$65.28M, BHU falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, BHU also operates in the hospitality industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap BHU but a low beta for the hospitality industry. This is an interesting conclusion, since both BHU’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How BHU’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 BHU’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since BHU’s fixed assets are only 25.51% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This is consistent with is current beta value which also indicates low volatility.