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Why You Need To Look At This Factor Before Buying Imaginatik PLC (AIM:IMTK)

If you are a shareholder in Imaginatik PLC’s (AIM:IMTK), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures IMTK’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole 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 Imaginatik

What does IMTK's beta value mean?

Imaginatik's beta of 0.26 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in IMTK'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. IMTK’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.

Does IMTK's size and industry impact the expected beta?

IMTK, with its market capitalisation of GBP £3.64M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, IMTK 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 IMTK but a low beta for the software industry. It seems as though there is an inconsistency in risks portrayed by IMTK’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.

AIM:IMTK Income Statement Oct 13th 17
AIM:IMTK Income Statement Oct 13th 17

How IMTK'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 IMTK’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company's overall assets, IMTK seems to have a smaller dependency on fixed costs to generate revenue. 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. Similarly, IMTK’s beta value conveys the same message.

What this means for you:

Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto IMTK. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. Consider the stock in terms of your other portfolio holdings, and whether it is worth investing more into IMTK.

Are you a potential investor? Before you buy IMTK, you should look at the stock in conjunction with their current portfolio holdings. IMTK 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.

Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Imaginatik for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Imaginatik anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.


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.

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