Insignia Systems Inc (ISIG): How Does It Impact Your Portfolio?
If you are looking to invest in Insignia Systems Inc’s (NASDAQ:ISIG), 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 ISIG’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.
Check out our latest analysis for Insignia Systems
What does ISIG's beta value mean?
With a five-year beta of 0.67, Insignia Systems appears to be a less volatile company compared to the rest of the market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. Based on this beta value, ISIG appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does ISIG's size and industry impact the expected beta?
A market capitalisation of USD $13.49M puts ISIG in the category of small-cap stocks, which tends to possess higher beta than larger companies. But, ISIG’s industry, media, is considered to be defensive, which means it is less volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap ISIG but a low beta for the media industry. It seems as though there is an inconsistency in risks from ISIG’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How ISIG'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 test ISIG’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company's overall assets, ISIG seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect ISIG 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. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto ISIG. 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 ISIG.
Are you a potential investor? Before you buy ISIG, you should look at the stock in conjunction with their current portfolio holdings. ISIG may be a great cushion during times of economic downturns due to its low beta and low fixed cost. However, in addition to this, I recommend taking into account its fundamentals as well before jumping into the investment.
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 Insignia Systems 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 Insignia Systems 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.
