How Does Investing In Full Metal Minerals Ltd (TSXV:FMM) Impact Your Portfolio?
If you are looking to invest in Full Metal Minerals Ltd’s (TSXV:FMM), 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 FMM’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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
View our latest analysis for Full Metal Minerals
An interpretation of FMM's beta
With a beta of 4.29, Full Metal Minerals is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. According to this value of beta, FMM 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.
Could FMM's size and industry cause it to be more volatile?
A market capitalisation of CAD $474.47K puts FMM in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, FMM’s industry, metals and mining, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the metals and mining industry, relative to those more well-established firms in a more defensive industry. This is consistent with FMM’s individual beta value we discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
How FMM's assets could affect its 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 FMM’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. FMM's fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. As a result, this aspect of FMM indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, FMM’s beta value conveys the same message.
What this means for you:
Are you a shareholder? You could benefit from higher returns from FMM during times of economic growth. Its higher fixed cost isn’t a major concern given margins are covered with high consumer demand. However, in times of a downturn, it may be safe to look at a more defensive stock which can cushion the impact of lower demand.
Are you a potential investor? I recommend that you look into FMM's fundamental factors such as its current valuation and financial health as well. 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. FMM may be a great investment during times of economic growth.
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 Full Metal Minerals 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 Full Metal Minerals 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.
