Hawaiian Telcom Holdco Inc (NASDAQ:HCOM): What Does It Mean For Your Portfolio?
For Hawaiian Telcom Holdco Inc’s (NASDAQ:HCOM) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures HCOM’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels of market risk, and the broad market index represents a beta value of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
Check out our latest analysis for Hawaiian Telcom Holdco
What is HCOM’s market risk?
Hawaiian Telcom Holdco’s beta of 0.96 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in HCOM’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, HCOM appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does HCOM’s size and industry impact the expected beta?
A market capitalisation of US$305.92M puts HCOM in the category of small-cap stocks, which tends to possess higher beta than larger companies. Conversely, the company operates in the telecom industry, which has been found to have low sensitivity to market-wide shocks. Therefore, investors can expect a high beta associated with the size of HCOM, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from HCOM’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How HCOM’s assets could affect its 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 examine HCOM’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given a fixed to total assets ratio of over 30%, HCOM seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. Thus, we can expect HCOM to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. However, this is the opposite to what HCOM’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto HCOM. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, HCOM may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether HCOM is a good investment for you, we also need to consider important company-specific fundamentals such as Hawaiian Telcom Holdco’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is HCOM’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 HCOM 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 HCOM’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.
