How Does Investing In Lupaka Gold Corp (CVE:LPK) Impact Your Portfolio?
If you are looking to invest in Lupaka Gold Corp’s (TSXV:LPK), 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 LPK’s exposure to the wider market risk, which reflects changes in economic and political factors. Not every stock is exposed to the same level 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 Lupaka Gold
What does LPK’s beta value mean?
Lupaka Gold has a beta of 1.57, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. According to this value of beta, LPK 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 LPK’s size and industry cause it to be more volatile?
LPK, with its market capitalisation of CA$24.95M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, LPK’s industry, metals and mining, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. 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 LPK’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
How LPK’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 examine LPK’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. LPK’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 LPK indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, LPK’s beta value conveys the same message.
What this means for you:
You may reap the gains of LPK’s returns in times of an economic boom. Though the business does have higher fixed cost than what is considered safe, during times of growth, consumer demand may be high enough to not warrant immediate concerns. However, during a downturn, a more defensive stock can cushion the impact of this risk. What I have not mentioned in my article here are important company-specific fundamentals such as Lupaka Gold’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
Financial Health: Is LPK’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 LPK 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 LPK’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.
