For Trinity Place Holdings Inc’s (AMEX:TPHS) 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 TPHS’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. 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 does TPHS’s beta value mean?
Trinity Place Holdings’s beta of 0.24 indicates that the company is less volatile relative to the diversified market portfolio. 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. Based on this beta value, TPHS appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could TPHS’s size and industry cause it to be more volatile?
With a market cap of US$214.57M, TPHS falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, TPHS also operates in the real estate 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 real estate industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both TPHS’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.
Can TPHS’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 TPHS’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, TPHS appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of TPHS indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts TPHS’s current beta value which indicates a below-average volatility.
What this means for you:
TPHS may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as TPHS is valuable to lower your risk of market exposure, in particular, during times of economic decline. What I have not mentioned in my article here are important company-specific fundamentals such as Trinity Place Holdings’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Financial Health: Is TPHS’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 TPHS 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 TPHS’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.