What You Must Know About Bushveld Minerals Limited’s (LON:BMN) Market Risks
If you are a shareholder in Bushveld Minerals Limited’s (AIM:BMN), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. BMN is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. 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.
Check out our latest analysis for Bushveld Minerals
What is BMN’s market risk?
With a five-year beta of 0.2, Bushveld Minerals appears to be a less volatile company compared to the rest of the market. This means that the change in BMN’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. BMN’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.
Does BMN’s size and industry impact the expected beta?
A market capitalisation of UK£76.87M puts BMN in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the metals and mining industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap BMN but a low beta for the metals and mining industry. This is an interesting conclusion, since both BMN’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is BMN’s cost structure indicative of a high 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 BMN’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 an insignificant portion of total assets, BMN doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect BMN 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, BMN’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 BMN. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. In order to fully understand whether BMN is a good investment for you, we also need to consider important company-specific fundamentals such as Bushveld Minerals’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is BMN’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.
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.
