If you are a shareholder in Firma Oponiarska Debica Spólka Akcyjna’s (WSE:DBC), 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 DBC’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 is DBC’s market risk?
Firma Oponiarska Debica Spólka Akcyjna’s beta of 0.04 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in DBC’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. DBC’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.
How does DBC’s size and industry impact its risk?
With a market cap of ZŁ1.88B, DBC falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, DBC also operates in the auto components industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the auto components industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by DBC’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How DBC’s assets could affect its 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 test DBC’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, DBC appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect DBC to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. This outcome contradicts DBC’s current beta value which indicates a below-average volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto DBC. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, DBC may be a valuable stock to hold onto in order to cushion the impact of a downturn. What I have not mentioned in my article here are important company-specific fundamentals such as Firma Oponiarska Debica Spólka Akcyjna’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 DBC’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 DBC 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 DBC’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.