If you are a shareholder in Grenke AG’s (XTRA:GLJ), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures GLJ’s exposure to the wider market risk, which reflects changes in economic and political factors. Not every stock is exposed 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.
What does GLJ’s beta value mean?
With a five-year beta of 0.95, Grenke 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. Based on this beta value, GLJ appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could GLJ’s size and industry cause it to be more volatile?
With a market capitalisation of €4.47B, GLJ is considered an established entity, which has generally experienced less relative risk in comparison to smaller sized companies. However, GLJ operates in the diversified financial industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors can expect a low beta associated with the size of GLJ, but a higher beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from GLJ’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can GLJ’s asset-composition point to a higher 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 examine GLJ’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, GLJ seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect GLJ 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, GLJ’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 GLJ. 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 GLJ is a good investment for you, we also need to consider important company-specific fundamentals such as Grenke’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for GLJ’s future growth? Take a look at our free research report of analyst consensus for GLJ’s outlook.
- Past Track Record: Has GLJ 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 GLJ’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.