If you are a shareholder in Inpixon’s (NASDAQ:INPX), 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 INPX’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. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
An interpretation of INPX’s beta
With a beta of 2.46, Inpixon is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. According to this value of beta, INPX can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
How does INPX’s size and industry impact its risk?
INPX, with its market capitalisation of USD $6.13M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, INPX’s industry, it services, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. So, investors should expect a larger beta for smaller companies operating in a cyclical industry in contrast with lower beta for larger firms in a more defensive industry. This supports our interpretation of INPX’s beta value discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
How INPX’s assets could affect its 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 INPX’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 INPX’s fixed assets are only 3.82% 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. However, this is the opposite to what INPX’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
Are you a shareholder? You could benefit from higher returns during times of economic growth by holding onto INPX. 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 INPX. For next steps, take a look at INPX’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 INPX, you should take into account how their portfolio currently moves with the market, in addition to the current economic environment. INPX may be a valuable addition to portfolios during times of economic growth, and it may be work looking further into fundamental factors such as current valuation and financial health. You can examine these factors in our free fundamental research report for INPX 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.