NYSE:YGE Income Statement Jan 22nd 18
Is YGE’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 YGE’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. YGE’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 YGE 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. Similarly, YGE’s beta value conveys the same message.
What this means for you:
You could benefit from higher returns from YGE during times of economic growth. Its higher fixed cost isn’t a major concern given margins are covered with high consumer demand. Though, in times of a downturn, it may be safe to look at a more defensive stock which can cushion the impact of lower demand. In order to fully understand whether YGE is a good investment for you, we also need to consider important company-specific fundamentals such as Yingli Green Energy Holding’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
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.