TSXV:WCC Income Statement Sep 21st 17
More How does WCC's size and industry impact its risk? A market capitalisation of CAD $4.49M puts WCC in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, WCC also operates in the materials industry, which has commonly demonstrated strong reactions to market-wide shocks. So, investors should expect a larger beta for smaller companies operating in a cyclical industry in contrast with lower beta for larger firms in a more defensive industry. This is consistent with WCC’s individual beta value we discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Is WCC's cost structure indicative of a high 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 WCC’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%, WCC 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 WCC 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. This is consistent with is current beta value which also indicates high volatility.
What this means for you: Are you a shareholder? You could benefit from higher returns from WCC during times of economic growth. Its higher fixed cost isn’t a major concern given margins are covered with high consumer demand. However, in times of a downturn, it may be safe to look at a more defensive stock which can cushion the impact of lower demand.
Are you a potential investor? I recommend that you look into WCC's fundamental factors such as its current valuation and financial health as well. 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. WCC may be a great investment during times of economic growth.
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 Consolidated Woodjam Copper 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 Consolidated Woodjam Copper 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.