Altan Nevada Minerals Limited (CVE:ANE): How Does It Impact Your Portfolio?
If you are looking to invest in Altan Nevada Minerals Limited’s (TSXV:ANE), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. The beta measures ANE’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole represents a beta value of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
See our latest analysis for Altan Nevada Minerals
What does ANE’s beta value mean?
Altan Nevada Minerals has a beta of 3.78, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. Based on this beta value, ANE can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Could ANE’s size and industry cause it to be more volatile?
With a market cap of CA$555.44K, ANE falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, ANE also operates in the metals and mining industry, which has commonly demonstrated strong reactions to market-wide shocks. So, investors should expect a larger beta for smaller companies operating in a cyclical industry in contrast with lower beta for larger firms in a more defensive industry. This supports our interpretation of ANE’s beta value discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Is ANE’s cost structure indicative of a high 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 ANE’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, ANE seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect ANE 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. However, this is the opposite to what ANE’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
You may reap the gains of ANE’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into ANE. What I have not mentioned in my article here are important company-specific fundamentals such as Altan Nevada Minerals’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
Financial Health: Is ANE’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Past Track Record: Has ANE been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ANE’s historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks 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.
