Should You Be Holding Marlin Gold Mining Ltd (CVE:MLN) Right Now?
If you are looking to invest in Marlin Gold Mining Ltd’s (TSXV:MLN), 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 MLN’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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
See our latest analysis for Marlin Gold Mining
What is MLN’s market risk?
Marlin Gold Mining has a beta of 2.66, 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. Based on this beta value, MLN 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.
How does MLN’s size and industry impact its risk?
With a market cap of CAD CA$159.56M, MLN falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, MLN also operates in the metals and mining 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 is consistent with MLN’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Can MLN’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 MLN’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. MLN’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. Thus, we can expect MLN 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. Similarly, MLN’s beta value conveys the same message.
What this means for you:
Are you a shareholder? You may reap the gains of MLN’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. For next steps, take a look at MLN’s outlook to see what analysts are expecting for the stock on our free analysis plaform here.
Are you a potential investor? Before you buy MLN, you should factor how your portfolio currently moves with the wider market, and where we are in the economic cycle. This stock could be an outperformer during times of growth, and it may be worth taking a deeper dive into the fundamentals to crystalize your thoughts on MLN. You can examine these factors in our free fundamental research report for MLN 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.
