For Nebelhornbahn-Aktiengesellschaft’s (MUN:NHB) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Generally, an investor should consider two types of risk that impact the market value of NHB. The first type is company-specific risk, which can be diversified away by investing in other companies to reduce exposure to one particular stock. The second risk is market-wide, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks.
Not every stock is exposed to the same level of market risk. A widely-used metric to measure a stock’s market risk is beta, 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.
An interpretation of NHB’s beta
With a five-year beta of 0.05, Nebelhornbahn-Aktiengesellschaft 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. Based on this beta value, NHB appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market. MUN:NHB Income Statement Apr 8th 18
How does NHB’s size and industry impact its risk?
With a market cap of €48.67M, NHB falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, NHB also operates in the hospitality industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap NHB but a low beta for the hospitality industry. It seems as though there is an inconsistency in risks portrayed by NHB’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.
Can NHB’s asset-composition point to a higher 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 examine NHB’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. NHB’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. As a result, this aspect of NHB indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts NHB’s current beta value which indicates a below-average volatility.
What this means for you:
NHB may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as NHB is valuable to lower your risk of market exposure, in particular, during times of economic decline. In order to fully understand whether NHB is a good investment for you, we also need to consider important company-specific fundamentals such as Nebelhornbahn-Aktiengesellschaft’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 NHB’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 NHB 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 NHB’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.
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