If you are looking to invest in FS Bancorp Inc’s (NASDAQ:FSBW), 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. FSBW 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. 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.
What is FSBW’s market risk?
FS Bancorp’s beta of 0.49 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in FSBW’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. Based on this beta value, FSBW appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does FSBW’s size and industry impact the expected beta?
FSBW, with its market capitalisation of US$208.95M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, FSBW also operates in the mortgage industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the mortgage industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both FSBW’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 FSBW’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 FSBW’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since FSBW’s fixed assets are only 1.58% 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.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto FSBW. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. In order to fully understand whether FSBW is a good investment for you, we also need to consider important company-specific fundamentals such as FS Bancorp’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for FSBW’s future growth? Take a look at our free research report of analyst consensus for FSBW’s outlook.
- Past Track Record: Has FSBW 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 FSBW’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.