What Are The Drivers Of Schneider Electric Infrastructure Limited’s (NSE:SCHNEIDER) Risks?
For Schneider Electric Infrastructure Limited’s (NSEI:SCHNEIDER) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. SCHNEIDER 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 broad market index 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.
See our latest analysis for Schneider Electric Infrastructure
An interpretation of SCHNEIDER’s beta
With a five-year beta of 0.51, Schneider Electric Infrastructure appears to be a less volatile company compared to the rest of the market. 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. SCHNEIDER’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Does SCHNEIDER’s size and industry impact the expected beta?
SCHNEIDER, with its market capitalisation of INR ₹28.88B, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the electrical industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the electrical 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 SCHNEIDER’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 SCHNEIDER’s assets could affect its 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 SCHNEIDER’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, SCHNEIDER 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 SCHNEIDER indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts SCHNEIDER’s current beta value which indicates a below-average volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto SCHNEIDER. 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, SCHNEIDER may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether SCHNEIDER is a good investment for you, we also need to consider important company-specific fundamentals such as Schneider Electric Infrastructure’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
1. Financial Health: Is SCHNEIDER’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.
2. Past Track Record: Has SCHNEIDER 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 SCHNEIDER’s historicals for more clarity.
3. 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.
