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HEC Infra Projects Limited (NSE:HECPROJECT): What Does Its Beta Value Mean For Your Portfolio?

Simply Wall St

Anyone researching HEC Infra Projects Limited (NSE:HECPROJECT) might want to consider the historical volatility of the share price. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

See our latest analysis for HEC Infra Projects

What does HECPROJECT's beta value mean to investors?

Given that it has a beta of 1.10, we can surmise that the HEC Infra Projects share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, HEC Infra Projects shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see HEC Infra Projects's revenue and earnings in the image below.

NSEI:HECPROJECT Income Statement, November 15th 2019

Does HECPROJECT's size influence the expected beta?

HEC Infra Projects is a rather small company. It has a market capitalisation of ₹252m, which means it is probably under the radar of most investors. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Since HEC Infra Projects has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. In order to fully understand whether HECPROJECT is a good investment for you, we also need to consider important company-specific fundamentals such as HEC Infra Projects’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for HECPROJECT’s future growth? Take a look at our free research report of analyst consensus for HECPROJECT’s outlook.
  2. Past Track Record: Has HECPROJECT 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 HECPROJECT's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how HECPROJECT measures up against other companies on valuation. You could start with this free list of prospective options.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.