For Trinity Place Holdings Inc’s (AMEX:TPHS) 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. Not every stock is exposed to the same level of market risk, and the market as a whole represents a beta value of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
What does TPHS’s beta value mean?
Trinity Place Holdings’s beta of 0.19 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in TPHS’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. TPHS’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.
How does TPHS’s size and industry impact its risk?
With a market cap of USD $215.44M, TPHS falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, TPHS’s industry, real estate, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap TPHS but a low beta for the real estate industry. It seems as though there is an inconsistency in risks portrayed by TPHS’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 TPHS’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 TPHS’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. TPHS’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. Thus, we can expect TPHS 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. However, this is the opposite to what TPHS’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto TPHS. 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, TPHS may be a valuable stock to hold onto in order to cushion the impact of a downturn. For more company-specific research on TPHS, check out our our free analysis plaform here.
Are you a potential investor? Depending on the composition of your portfolio, TPHS may be a valuable addition to cushion the impact of a downturn. Potential investors should look into its fundamental factors such as its current valuation and financial health. Take into account your portfolio sensitivity to the market before you invest in TPHS, as well as where we are in the current economic cycle. You can examine these factors in our free fundamental research report for TPHS 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.