Should You Be Concerned About Cinedigm Corp’s (CIDM) Risks?
If you are looking to invest in Cinedigm Corp’s (NASDAQ:CIDM), 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. Broadly speaking, there are two types of risk you should consider when investing in stocks such as CIDM. The first type is company-specific risk, which can be diversified away by investing in other companies to reduce exposure to one particular stock. The second type is market risk, one that you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks in the market.
Not all stocks are expose to the same level of market risk. The most widely used metric to quantify a stock's market risk is beta, and the market as a whole represents a beta of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
See our latest analysis for CIDM
An interpretation of CIDM's beta
Cinedigm’s beta of 0.64 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in CIDM's value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. CIDM’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.
How does CIDM's size and industry impact its risk?
With a market cap of USD $20.49M, CIDM falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Conversely, the company operates in the media industry, which has been found to have low sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap CIDM but a low beta for the X industry. This is an interesting conclusion, since its size suggests CIDM should be more volatile than it actually is. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How CIDM'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 CIDM’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 that fixed assets make up less than a third of the company’s total assets, CIDM doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect CIDM 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. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
Are you a shareholder? You may reap the benefit of muted movements during times of economic decline by holding onto CIDM. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. I recommend analysing the stock in terms of your current portfolio composition before increasing your exposure to the stock.
Are you a potential investor? Before you buy CIDM, you should look at the stock in conjunction with their current portfolio holdings. CIDM may be a great cushion during times of economic downturns due to its low beta and low fixed cost. However, in addition to this, I recommend taking into account its fundamentals as well before jumping into the investment.
Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Cinedigm for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Cinedigm anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
