Can Jamba Inc (NASDAQ:JMBA) Improve Your Portfolio Returns?
If you are looking to invest in Jamba Inc’s (NASDAQ:JMBA), 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. 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. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole represents a beta 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.
See our latest analysis for Jamba
What does JMBA’s beta value mean?
Jamba’s beta of 0.03 indicates that the company is less volatile relative to the diversified market portfolio. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. Based on this beta value, JMBA appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could JMBA’s size and industry cause it to be more volatile?
With a market cap of US$139.67M, JMBA falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, JMBA’s industry, hospitality, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the hospitality 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 JMBA’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is JMBA’s cost structure indicative of a high 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 JMBA’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. JMBA’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 JMBA 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. This outcome contradicts JMBA’s current beta value which indicates a below-average volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto JMBA. 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, JMBA may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether JMBA is a good investment for you, we also need to consider important company-specific fundamentals such as Jamba’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is JMBA’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 JMBA 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 JMBA’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.