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For Integrated Media Technology Limited’s (ASX:ITL) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures ITL’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 ITL’s beta value mean?
With a five-year beta of 0.71, Integrated Media Technology appears to be a less volatile company compared to the rest of the market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. ITL’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 ITL’s size and industry cause it to be more volatile?
ITL, with its market capitalisation of AU$42.30M, is a small-cap stock, which generally have higher beta than similar companies of larger size. However, ITL operates in the media industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap ITL but a low beta for the media industry. It seems as though there is an inconsistency in risks from ITL’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How ITL’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 ITL’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since ITL’s fixed assets are only 6.55% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect ITL 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, ITL’s beta value conveys the same message.
What this means for you:
You may reap the benefit of muted movements during times of economic decline by holding onto ITL. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. What I have not mentioned in my article here are important company-specific fundamentals such as Integrated Media Technology’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
Financial Health: Is ITL’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.
Past Track Record: Has ITL 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 ITL’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.