ASX:POS Income Statement Dec 20th 17
How POS’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 POS’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. POS’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. Thus, we can expect POS to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. However, this is the opposite to what POS’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
Are you a shareholder? POS 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 POS is valuable to lower your risk of market exposure, in particular, during times of economic decline. For next steps, take a look at POS’s outlook to see what analysts are expecting for the stock on our free analysis plaform here.
Are you a potential investor? Before you buy POS, you should look at the stock in conjunction with their current portfolio holdings. POS may be a great cushion during times of economic downturns due to its low beta. However, its high fixed cost may mean margins are squeezed if demand is low. I recommend taking into account its fundamentals as well before leaping into the investment. You can examine these factors in our free fundamental research report for POS 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.