TSXV:SPX Income Statement Dec 20th 17
How SPX’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 SPX’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, SPX appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of SPX indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what SPX’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto SPX. 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. Depending on the composition of your portfolio, SPX may be a valuable stock to hold onto in order to cushion the impact of a downturn. For next steps, take a look at SPX’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 SPX, you should look at the stock in conjunction with their current portfolio holdings. SPX 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. Continue your research on the stock with our free fundamental research report for SPX 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.