If you are looking to invest in JRjr33 Inc’s (AMEX:JRJR), 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. JRJR is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not every stock is exposed to the same level 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.
What does JRJR’s beta value mean?
JRjr33 has a beta of 1.65, 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. According to this value of beta, JRJR 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.
Does JRJR’s size and industry impact the expected beta?
A market capitalisation of USD $12.40M puts JRJR in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, JRJR’s industry, internet and direct marketing retail, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. 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 supports our interpretation of JRJR’s beta value discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Can JRJR’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 JRJR’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, JRJR appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of JRJR indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, JRJR’s beta value conveys the same message.
What this means for you:
Are you a shareholder? You may reap the gains of JRJR’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 JRJR’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 JRJR, 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 JRJR. Continue your research on the stock with our free fundamental research report for JRJR 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.