How Does Investing In BSQUARE Corporation (NASDAQ:BSQR) Impact Your Portfolio?
If you are looking to invest in BSQUARE Corporation’s (NASDAQ:BSQR), 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 BSQR’s exposure to the wider market risk, which reflects changes in economic and political factors. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta 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 BSQUARE
What does BSQR’s beta value mean?
BSQUARE’s five-year beta of 1.8 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. Based on this beta value, BSQR may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.
How does BSQR’s size and industry impact its risk?
A market capitalisation of US$52.03M puts BSQR in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, BSQR also operates in the software 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 BSQR’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Can BSQR’s asset-composition point to a higher 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 BSQR’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, BSQR doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect BSQR 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 BSQR’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 BSQR’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 BSQR. What I have not mentioned in my article here are important company-specific fundamentals such as BSQUARE’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is BSQR’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 BSQR 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 BSQR’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.
