Should You Be Holding Mirvac Group (ASX:MGR) Right Now?
If you are a shareholder in Mirvac Group’s (ASX:MGR), 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 MGR’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 MGR
What is MGR’s market risk?
Mirvac Group’s beta of 0.73 indicates that the company is less volatile relative to the diversified market portfolio. 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. MGR’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.
Could MGR's size and industry cause it to be more volatile?
MGR has a market capitalization of AUD $8.42B, putting it in the category of established companies, which are found to experience less relative risk compared to small-sized companies. However, MGR operates in the equity real estate investment trusts (reits) industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a low beta for the large-cap nature of MGR but a higher beta for the equity real estate investment trusts (reits) industry. It seems as though there is an inconsistency in risks from MGR’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How MGR'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 MGR’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, MGR 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. Similarly, MGR’s beta value conveys the same message.
What this means for you:
Are you a shareholder? You may reap the benefit of muted movements during times of economic decline by holding onto MGR. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. I recommend analysing the stock in terms of your current portfolio composition before increasing your exposure to the stock.
Are you a potential investor? Before you buy MGR, you should look at the stock in conjunction with their current portfolio holdings. MGR may be a great cushion during times of economic downturns due to its low beta and low fixed cost. However, in addition to this, I recommend taking into account its fundamentals as well before jumping into the investment.
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 Mirvac 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 Mirvac 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.
