ASX:CRB Income Statement Oct 12th 17
How CRB's assets could affect its beta
During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I examine CRB’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, CRB doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect CRB 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. Similarly, CRB’s beta value conveys the same message.
What this means for you:
Are you a shareholder? You may reap the benefit of muted movements during times of economic decline by holding onto CRB. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. I recommend analysing the stock in terms of your current portfolio composition before increasing your exposure to the stock.
Are you a potential investor? Before you buy CRB, you should look at the stock in conjunction with their current portfolio holdings. CRB may be a great cushion during times of economic downturns due to its low beta and low fixed cost. However, in addition to this, I recommend taking into account its fundamentals as well before jumping into the investment.
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 Carbine 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 Carbine 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.