What Kind Of Risk Should You Expect For BaWang International (Group) Holding Limited (HKG:1338)?
If you are a shareholder in BaWang International (Group) Holding Limited’s (SEHK:1338), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Different characteristics of a stock expose it to various levels of market risk, and the broad market index represents a beta value of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
View our latest analysis for BaWang International (Group) Holding
An interpretation of 1338’s beta
BaWang International (Group) Holding’s beta of 0.55 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. 1338’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Could 1338’s size and industry cause it to be more volatile?
1338, with its market capitalisation of HK$708.25M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Conversely, the company operates in the personal products industry, which has been found to have low sensitivity to market-wide shocks. Therefore, investors can expect a high beta associated with the size of 1338, but a lower beta given the nature of the industry it operates in. This is an interesting conclusion, since its size suggests 1338 should be more volatile than it actually is. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is 1338’s cost structure indicative of a high 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 1338’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given a fixed to total assets ratio of over 30%, 1338 seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. As a result, this aspect of 1338 indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts 1338’s current beta value which indicates a below-average volatility.
What this means for you:
1338 may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as 1338 is valuable to lower your risk of market exposure, in particular, during times of economic decline. What I have not mentioned in my article here are important company-specific fundamentals such as BaWang International (Group) Holding’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is 1338’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 1338 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 1338’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.
