Is NME’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 NME’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since NME’s fixed assets are only 25.33% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This outcome contradicts NME’s current beta value which indicates an above-average volatility.
What this means for you:
Are you a shareholder? You may reap the gains of NME’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into NME. For more company-specific research on NME, check out our our free analysis plaform here.
Are you a potential investor? I recommend that you look into NME’s fundamental factors such as its current valuation and financial health. 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. NME may be a great investment during times of economic growth. You can examine these factors in our free fundamental research report for NME 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.