For ChinaCache International Holdings Ltd’s (NASDAQ:CCIH) 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 CCIH’s exposure to the wider market risk, which reflects changes in economic and political factors. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta value 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.
What does CCIH’s beta value mean?
ChinaCache International Holdings’s beta of 0.73 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in CCIH’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, CCIH appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could CCIH’s size and industry cause it to be more volatile?
CCIH, with its market capitalisation of USD $24.56M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, CCIH’s industry, internet software and services, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the internet software and services industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by CCIH’s size and industry relative to its actual beta value.
Can CCIH’s asset-composition point to a higher 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 CCIH’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 CCIH’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. Similarly, CCIH’s beta value conveys the same message.
What this means for you:
Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto CCIH. 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, CCIH may be a valuable stock to hold onto in order to cushion the impact of a downturn. For more company-specific research on CCIH, check out our our free analysis plaform here.
Are you a potential investor? Before you buy CCIH, you should look at the stock in conjunction with their current portfolio holdings. CCIH may be a great cushion during times of economic downturns due to its low beta, but before leaping into the investment, I recommend taking into account its fundamentals as well. You can examine these factors in our free fundamental research report for CCIH 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.