What Are The Drivers Of National Holdings Corporation’s (NASDAQ:NHLD) Risks?
If you are looking to invest in National Holdings Corporation’s (NASDAQ:NHLD), 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. 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 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.
See our latest analysis for National Holdings
An interpretation of NHLD’s beta
National Holdings’s beta of 0.38 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in NHLD’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. Based on this beta value, NHLD appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
How does NHLD’s size and industry impact its risk?
A market capitalisation of US$43.47M puts NHLD in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the capital markets 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 NHLD but a low beta for the capital markets industry. It seems as though there is an inconsistency in risks portrayed by NHLD’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 NHLD’s cost structure indicative of a high 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 NHLD’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since NHLD’s fixed assets are only 3.21% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect NHLD 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. Similarly, NHLD’s beta value conveys the same message.
What this means for you:
You may reap the benefit of muted movements during times of economic decline by holding onto NHLD. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. What I have not mentioned in my article here are important company-specific fundamentals such as National Holdings’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 NHLD’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 NHLD 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 NHLD’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.
