ASX:PMY Income Statement Oct 2nd 17
How PMY's assets could affect its 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 PMY’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. PMY'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 PMY indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, PMY’s beta value conveys the same message.
What this means for you:
Are you a shareholder? You could benefit from higher returns from PMY 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? Before you buy PMY, you should factor how your portfolio currently moves with the wider market, and where we are in the economic cycle. This stock could be an outperformer during times of growth, and it may be worth taking a deeper dive into the fundamentals to crystalize your thoughts on PMY.
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 Pacifico Minerals 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 Pacifico Minerals 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.