ASX:FYI Income Statement Sep 7th 17
Does FYI's size and industry impact the expected beta?
FYI, with its market capitalisation of AUD $2.68M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the materials industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the materials industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both FYI’s size and industry indicates the stock should have a higher beta than it currently has.
Can FYI'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 FYI’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint.Considering fixed assets account for less than a third of the company's overall assets, FYI seems to have a smaller dependency on fixed costs to generate revenue.Thus, we can expect FYI 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. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
Are you a shareholder? FYI 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 FYI is valuable to lower your risk of market exposure, in particular, during times of economic decline.
Are you a potential investor? Before you buy FYI, you should look at the stock in conjunction with their current portfolio holdings. FYI may be a great cushion during times of economic downturns due to its low beta, but before leaping into the investment, I recommend taking into account its fundamentals as well.
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 FYI Resources 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 FYI Resources 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.