ASX:NKP Income Statement Jan 9th 18
Is NKP’s cost structure indicative of a high 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 NKP’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 a fixed to total assets ratio of over 30%, NKP seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. Thus, we can expect NKP 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 NKP’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
Are you a shareholder? NKP 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 NKP is valuable to lower your risk of market exposure, in particular, during times of economic decline. For more company-specific research on NKP, check out our our free analysis plaform here.
Are you a potential investor? Depending on the composition of your portfolio, NKP may be a valuable addition to cushion the impact of a downturn. Potential investors should look into its fundamental factors such as its current valuation and financial health. Take into account your portfolio sensitivity to the market before you invest in NKP, as well as where we are in the current economic cycle. Continue your research on the stock with our free fundamental research report for NKP 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.