If you are looking to invest in Pragma Faktoring Spolka Akcyjna’s (WSE:PRF), 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. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
An interpretation of PRF’s beta
Pragma Faktoring Spolka Akcyjna’s beta of 0.16 indicates that the company is less volatile relative to the diversified market portfolio. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. Based on this beta value, PRF appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
How does PRF’s size and industry impact its risk?
PRF, with its market capitalisation of ZŁ48.62M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, PRF also operates in the diversified financial industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap PRF but a low beta for the diversified financial industry. It seems as though there is an inconsistency in risks portrayed by PRF’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How PRF’s assets could affect its 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 test PRF’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 account for less than a third of the company’s overall assets, PRF seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect PRF to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. Similarly, PRF’s beta value conveys the same message.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto PRF. 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 PRF is a good investment for you, we also need to consider important company-specific fundamentals such as Pragma Faktoring Spolka Akcyjna’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is PRF’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 PRF 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 PRF’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.