AIM:CON Income Statement Sep 21st 17
Could CON's size and industry cause it to be more volatile?
With a market cap of GBP £2.21M, CON falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, CON’s industry, materials, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. 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. It seems as though there is an inconsistency in risks portrayed by CON’s size and industry relative to its actual beta value.
Can CON'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 CON’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 CON’s fixed assets are only 0.00% 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 CON 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? CON 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 CON is valuable to lower your risk of market exposure, in particular, during times of economic decline.
Are you a potential investor? Before you buy CON, you should look at the stock in conjunction with their current portfolio holdings. CON 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 Connemara Mining Company 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 Connemara Mining Company 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.