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How Does Investing In Destination Maternity Corporation (NASDAQ:DEST) Impact Your Portfolio?

If you are a shareholder in Destination Maternity Corporation’s (NASDAQ:DEST), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. 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 Destination Maternity

An interpretation of DEST’s beta

Destination Maternity’s beta of 0.17 indicates that the company is less volatile relative to the diversified market portfolio. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. DEST’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 DEST’s size and industry impact its risk?

With a market cap of USD $39.01M, DEST falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Furthermore, the company operates in the specialty retail industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap DEST but a low beta for the specialty retail industry. It seems as though there is an inconsistency in risks portrayed by DEST’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.

NasdaqGS:DEST Income Statement Dec 20th 17
NasdaqGS:DEST Income Statement Dec 20th 17

How DEST’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 DEST’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, DEST appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of DEST indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts DEST’s current beta value which indicates a below-average volatility.

What this means for you:

Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto DEST. 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, DEST may be a valuable stock to hold onto in order to cushion the impact of a downturn. For more company-specific research on DEST, check out our our free analysis plaform here.

Are you a potential investor? Before you buy DEST, you should look at the stock in conjunction with their current portfolio holdings. DEST may be a great cushion during times of economic downturns due to its low beta. However, its high fixed cost may mean margins are squeezed if demand is low. I recommend taking into account its fundamentals as well before leaping into the investment. Continue your research on the stock with our free fundamental research report for DEST 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.

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