What You Must Know About Gravity Co Ltd’s (GRVY) Risks
If you are looking to invest in Gravity Co Ltd’s (NASDAQ:GRVY), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. GRVY 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.
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An interpretation of GRVY’s beta
Gravity’s beta of 0.08 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. GRVY’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 GRVY’s size and industry impact the expected beta?
GRVY, with its market capitalisation of USD $208.81M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, GRVY also operates in the software industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap GRVY but a low beta for the software industry. It seems as though there is an inconsistency in risks portrayed by GRVY’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How GRVY’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 GRVY’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since GRVY’s fixed assets are only 1.13% 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 GRVY 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. This is consistent with is current beta value which also indicates low volatility.
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 GRVY. 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. For next steps, take a look at GRVY’s outlook to see what analysts are expecting for the stock on our free analysis plaform here.
Are you a potential investor? You should consider the stock in terms of your portfolio. It could be a valuable addition in times of an economic decline, due to its low fixed cost and low beta. However, I recommend you to also look at its fundamental factors as well, such as its current valuation and financial health to assess its investment thesis in further detail. You can examine these factors in our free fundamental research report for GRVY 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.
