Does LightInTheBox Holding Co Ltd (NYSE:LITB) Fall With The Market?
If you are a shareholder in LightInTheBox Holding Co Ltd’s (NYSE:LITB), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures LITB’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 broad market index 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 out our latest analysis for LightInTheBox Holding
An interpretation of LITB’s beta
LightInTheBox Holding’s five-year beta of 1.28 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. According to this value of beta, LITB will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
Does LITB’s size and industry impact the expected beta?
A market capitalisation of US$140.36m puts LITB in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, LITB also operates in the online retail industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect higher beta for small-cap stocks in a cyclical industry compared to larger stocks in a defensive industry. This supports our interpretation of LITB’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Can LITB’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 LITB’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, LITB seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect LITB 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. This outcome contradicts LITB’s current beta value which indicates an above-average volatility.
What this means for you:
You could benefit from higher returns during times of economic growth by holding onto LITB. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. What I have not mentioned in my article here are important company-specific fundamentals such as LightInTheBox Holding’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is LITB’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 LITB 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 LITB’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.
