If you are a shareholder in Hastings Technology Metals Limited’s (ASX:HAS), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. HAS is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not every stock is exposed to the same level 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 Hastings Technology Metals
What does HAS’s beta value mean?
Hastings Technology Metals’s beta of 0.98 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. HAS’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.
Could HAS’s size and industry cause it to be more volatile?
HAS, with its market capitalisation of AUD A$224.85M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, HAS’s industry, metals and mining, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap HAS but a low beta for the metals and mining industry. It seems as though there is an inconsistency in risks portrayed by HAS’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 HAS’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 HAS’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%, HAS appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect HAS to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. This outcome contradicts HAS’s current beta value which indicates a below-average volatility.