Should You Be Holding Cloudcall Group PLC (AIM:CALL) Right Now?
If you are looking to invest in Cloudcall Group PLC’s (AIM:CALL), 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. The beta measures CALL’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole represents a beta value 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.
See our latest analysis for CALL
What is CALL’s market risk?
With a beta of 1.72, Cloudcall Group is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. According to this value of beta, CALL can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Does CALL's size and industry impact the expected beta?
With a market cap of GBP £30.65M, CALL falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, CALL operates in the diversified telecommunication services industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of CALL, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from CALL’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can CALL's asset-composition point to a higher 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 CALL’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, CALL doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. 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. However, this is the opposite to what CALL’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
Are you a shareholder? You could benefit from higher returns during times of economic growth by holding onto CALL. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. Consider the stock in terms of your other portfolio holdings, and whether it is worth investing more into CALL.
Are you a potential investor? Before you buy CALL, you should take into account how their portfolio currently moves with the market, in addition to the current economic environment. CALL may be a valuable addition to portfolios during times of economic growth, and it may be work looking further into fundamental factors such as current valuation and financial health.
Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Cloudcall Group for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Cloudcall Group anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
