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How Does Investing In Carver Bancorp Inc (CARV) Impact Your Portfolio?

Michael Crabtree

For Carver Bancorp Inc’s (NASDAQ:CARV) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures CARV’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels of market risk, and the broad market index 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.

See our latest analysis for CARV

What does CARV’s beta value mean?

With a five-year beta of 0.69, Carver Bancorp appears to be a less volatile company compared to the rest of the 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. CARV’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 CARV’s size and industry impact the expected beta?

A market capitalisation of USD $12.23M puts CARV in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, CARV’s industry, thrifts and mortgage finance, 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 CARV but a low beta for the thrifts and mortgage finance industry. This is an interesting conclusion, since both CARV’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.

NasdaqCM:CARV Income Statement Nov 22nd 17
NasdaqCM:CARV Income Statement Nov 22nd 17

Is CARV’s cost structure indicative of a high 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 test CARV’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets is virtually non-existent in CARV’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 is consistent with is current beta value which also indicates low volatility.

What this means for you:

Are you a shareholder? You may reap the benefit of muted movements during times of economic decline by holding onto CARV. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. I recommend analysing the stock in terms of your current portfolio composition before increasing your exposure to the stock. For more company-specific research on CARV, check out our our free analysis plaform here.

Are you a potential investor? Before you buy CARV, you should look at the stock in conjunction with their current portfolio holdings. CARV may be a great cushion during times of economic downturns due to its low beta and low fixed cost. However, in addition to this, I recommend taking into account its fundamentals as well before jumping into the investment. Continue your research on the stock with our free fundamental research report for CARV 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.