What Are The Drivers Of Supportcom Inc’s (SPRT) Risks?
If you are a shareholder in Supportcom Inc’s (NASDAQ:SPRT), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. 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. Not every stock is exposed to the same level 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.
View our latest analysis for Support.com
An interpretation of SPRT's beta
With a five-year beta of 0.77, Support.com appears to be a less volatile company compared to the rest of the market. This means that the change in SPRT'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. SPRT's beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
How does SPRT's size and industry impact its risk?
SPRT, with its market capitalisation of USD $44.71M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the internet software and services industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the internet software and services industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by SPRT’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 SPRT'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 SPRT’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 SPRT’s fixed assets are only 2.18% 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, SPRT’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 SPRT. 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 SPRT.
Are you a potential investor? You should consider the stock in terms of your portfolio. It could be a valuable addition in times of an economic decline, due to its low fixed cost and low beta. However, I recommend you to also look at its fundamental factors as well, such as its current valuation and financial health to assess its investment thesis in further detail.
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 Support.com 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 Support.com 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.
