If you are a shareholder in Sunvest Corporation Limited’s (ASX:SVS), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of 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. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole represents a beta 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.
Check out our latest analysis for Sunvest
What is SVS’s market risk?
Sunvest’s beta of 0.63 indicates that the company is less volatile relative to the diversified market portfolio. 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. Based on this beta value, SVS appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could SVS’s size and industry cause it to be more volatile?
A market capitalisation of AUD A$3.40M puts SVS in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, SVS also operates in the capital markets industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap SVS but a low beta for the capital markets industry. This is an interesting conclusion, since both SVS’s size and industry indicates the stock should have a higher beta than it currently has.
How SVS’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 SVS’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up an insignificant portion of total assets, SVS doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. 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.
What this means for you:
Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto SVS. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, SVS may be a valuable stock to hold onto in order to cushion the impact of a downturn. For next steps, take a look at SVS’s outlook to see what analysts are expecting for the stock on our free analysis plaform here.