If you are looking to invest in Wireless Telecom Group Inc’s (AMEX:WTT), 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. WTT 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. 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 is WTT’s market risk?
Wireless Telecom Group’s beta of 0.14 indicates that the stock value will be less variable compared to the whole stock market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. WTT’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 WTT’s size and industry impact its risk?
WTT, with its market capitalisation of US$47.20M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, WTT also operates in the electronic industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap WTT but a low beta for the electronic industry. This is an interesting conclusion, since both WTT’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How WTT’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 examine WTT’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since WTT’s fixed assets are only 21.01% 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 WTT 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. Similarly, WTT’s beta value conveys the same message.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto WTT. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. In order to fully understand whether WTT is a good investment for you, we also need to consider important company-specific fundamentals such as Wireless Telecom Group’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is WTT’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 WTT 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 WTT’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.