If you are looking to invest in Kandi Technologies Group Inc’s (NASDAQ:KNDI), 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. Not all stocks are expose to the same level of market risk, and the market as a whole 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.
What does KNDI’s beta value mean?
Kandi Technologies Group has a beta of 2.85, 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, KNDI 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.
Does KNDI’s size and industry impact the expected beta?
KNDI, with its market capitalisation of USD $333.85M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, KNDI also operates in the auto components industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the auto components industry, relative to those more well-established firms in a more defensive industry. This supports our interpretation of KNDI’s beta value discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
How KNDI’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 KNDI’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 KNDI’s fixed assets are only 17.08% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect KNDI 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. However, this is the opposite to what KNDI’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
Are you a shareholder? You may reap the gains of KNDI’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into KNDI. For more company-specific research on KNDI, check out our our free analysis plaform here.
Are you a potential investor? I recommend that you look into KNDI’s fundamental factors such as its current valuation and financial health. 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. KNDI may be a great investment during times of economic growth. You can examine these factors in our free fundamental research report for KNDI 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.