How Does Investing In The KEYW Holding Corporation (NASDAQ:KEYW) Impact Your Portfolio?
If you are a shareholder in The KEYW Holding Corporation’s (NASDAQ:KEYW), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. KEYW 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. Not every stock is exposed to the same level of market risk, and the market as a whole represents a beta 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 KEYW Holding
What does KEYW’s beta value mean?
KEYW Holding’s beta of 0.8 indicates that the stock value will be less variable compared to the whole stock market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. Based on this beta value, KEYW appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does KEYW’s size and industry impact the expected beta?
With a market cap of USD $288.87M, KEYW falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, KEYW also operates in the aerospace and defense industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap KEYW but a low beta for the aerospace and defense industry. It seems as though there is an inconsistency in risks portrayed by KEYW’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Is KEYW’s cost structure indicative of a high 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 KEYW’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since KEYW’s fixed assets are only 9.17% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. Similarly, KEYW’s beta value conveys the same message.
What this means for you:
Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto KEYW. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. Consider the stock in terms of your other portfolio holdings, and whether it is worth investing more into KEYW. For more company-specific research on KEYW, check out our our free analysis plaform here.
Are you a potential investor? Before you buy KEYW, you should look at the stock in conjunction with their current portfolio holdings. KEYW 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. You can examine these factors in our free fundamental research report for KEYW 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.
