Does Toople Plc (LON:TOOP) Go Up With The Market?
If you are a shareholder in Toople Plc’s (LSE:TOOP), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. TOOP 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 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.
View our latest analysis for Toople
What does TOOP’s beta value mean?
Toople’s beta of 0.19 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in TOOP’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, TOOP appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could TOOP’s size and industry cause it to be more volatile?
A market capitalisation of UK£1.78M puts TOOP in the category of small-cap stocks, which tends to possess higher beta than larger companies. However, TOOP operates in the telecom industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of TOOP, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from TOOP’s size and industry.
Is TOOP’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 TOOP’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 TOOP’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, TOOP’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 TOOP. 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, TOOP may be a valuable stock to hold onto in order to cushion the impact of a downturn. What I have not mentioned in my article here are important company-specific fundamentals such as Toople’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 TOOP’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.
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.
