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For VIS Containers Manufacturing Co Ltd’s (ATSE:VIS) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures VIS’s exposure to the wider market risk, which reflects changes in economic and political factors. Not all stocks are expose 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 considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
An interpretation of VIS’s beta
With a five-year beta of 0.45, VIS Containers Manufacturing appears to be a less volatile company compared to the rest of the market. 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. VIS’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 VIS’s size and industry impact the expected beta?
A market capitalisation of €4.67M puts VIS in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the packaging 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 VIS but a low beta for the packaging industry. This is an interesting conclusion, since both VIS’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.
How VIS’s assets could affect its beta
During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I test VIS’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given a fixed to total assets ratio of over 30%, VIS seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. Thus, we can expect VIS 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 VIS’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto VIS. 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, VIS may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether VIS is a good investment for you, we also need to consider important company-specific fundamentals such as VIS Containers Manufacturing’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is VIS’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 VIS 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 VIS’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.