If you are looking to invest in Bravo Brio Restaurant Group Inc’s (NASDAQ:BBRG), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. BBRG 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 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.
An interpretation of BBRG’s beta
Bravo Brio Restaurant Group’s beta of 0.92 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. BBRG’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.
Does BBRG’s size and industry impact the expected beta?
A market capitalisation of US$61.18M puts BBRG in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the hospitality industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the hospitality industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both BBRG’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How BBRG’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 BBRG’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 a fixed to total assets ratio of over 30%, BBRG seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. Thus, we can expect BBRG 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 BBRG’s current beta value which indicates a below-average volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto BBRG. 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, BBRG may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether BBRG is a good investment for you, we also need to consider important company-specific fundamentals such as Bravo Brio Restaurant Group’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is BBRG’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has BBRG been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of BBRG’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.