How Should You Think About Johnston Press plc’s (LON:JPR) Risks?
For Johnston Press plc’s (LSE:JPR) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact 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 market as a whole represents a beta 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.
See our latest analysis for Johnston Press
What is JPR’s market risk?
With a five-year beta of 0.54, Johnston Press appears to be a less volatile company compared to the rest of the market. This means that the change in JPR’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. JPR’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 JPR’s size and industry impact its risk?
JPR, with its market capitalisation of GBP £12.11M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Conversely, the company operates in the media industry, which has been found to have low sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap JPR but a low beta for the media industry. It seems as though there is an inconsistency in risks from JPR’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Is JPR’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 JPR’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 less than a third of the company’s total assets, JPR doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. 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 JPR. 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 JPR’s outlook to see what analysts are expecting for the stock on our free analysis plaform here.
Are you a potential investor? Before you buy JPR, you should look at the stock in conjunction with their current portfolio holdings. JPR may be a great cushion during times of economic downturns due to its low beta and low fixed cost. However, in addition to this, I recommend taking into account its fundamentals as well before jumping into the investment. You can examine these factors in our free fundamental research report for JPR 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.
