Does Anchor Resources Limited (ASX:AHR) Go Up With The Market?
If you are a shareholder in Anchor Resources Limited’s (ASX:AHR), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. AHR is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Different characteristics of a stock expose it to various levels of market risk, and the broad market index represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
View our latest analysis for Anchor Resources
What is AHR’s market risk?
Anchor Resources’s beta of 0.58 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in AHR’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. AHR’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
How does AHR’s size and industry impact its risk?
AHR, with its market capitalisation of AU$840.56K, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, AHR’s industry, metals and mining, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap AHR but a low beta for the metals and mining industry. This is an interesting conclusion, since both AHR’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How AHR’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 test AHR’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, AHR appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect AHR 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 AHR’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto AHR. 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, AHR may be a valuable stock to hold onto in order to cushion the impact of a downturn. What I have not mentioned in my article here are important company-specific fundamentals such as Anchor Resources’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is AHR’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 AHR 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 AHR’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.
