How Does Hansa Medical AB (publ) (STO:HMED) Affect Your Portfolio Returns?
For Hansa Medical AB (publ)’s (OM:HMED) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. HMED 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 all stocks are expose 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 Hansa Medical
An interpretation of HMED’s beta
Hansa Medical has a beta of 1.57, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. According to this value of beta, HMED will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
Does HMED’s size and industry impact the expected beta?
A market capitalisation of KR8.66B puts HMED in the category of small-cap stocks, which tends to possess higher beta than larger companies. However, HMED operates in the biotechs industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of HMED, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from HMED’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Is HMED’s cost structure indicative of a high 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 HMED’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Considering fixed assets is virtually non-existent in HMED’s operations, it has low dependency on fixed costs to generate revenue. 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 outcome contradicts HMED’s current beta value which indicates an above-average volatility.
What this means for you:
You could benefit from higher returns during times of economic growth by holding onto HMED. 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 HMED is a good investment for you, we also need to consider important company-specific fundamentals such as Hansa Medical’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for HMED’s future growth? Take a look at our free research report of analyst consensus for HMED’s outlook.
Past Track Record: Has HMED 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 HMED’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.
