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What Kind Of Risk And Return Should You Expect For Rex Energy Corporation (NASDAQ:REXX)?

If you are looking to invest in Rex Energy Corporation’s (NASDAQ:REXX), 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. REXX 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 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.

View our latest analysis for Rex Energy

What does REXX’s beta value mean?

Rex Energy’s five-year beta of 1.84 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. Based on this beta value, REXX 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.

How does REXX’s size and industry impact its risk?

With a market cap of USD $15.21M, REXX falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Furthermore, the company operates in the oil and gas industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the oil and gas industry, relative to those more well-established firms in a more defensive industry. This supports our interpretation of REXX’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.

NasdaqCM:REXX Income Statement Jan 20th 18
NasdaqCM:REXX Income Statement Jan 20th 18

How REXX’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 test REXX’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%, REXX appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect REXX 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 is consistent with is current beta value which also indicates high volatility.

What this means for you:

You could benefit from higher returns from REXX during times of economic growth. Its higher fixed cost isn’t a major concern given margins are covered with high consumer demand. Though, in times of a downturn, it may be safe to look at a more defensive stock which can cushion the impact of lower demand. What I have not mentioned in my article here are important company-specific fundamentals such as Rex Energy’s financial health and performance track record. I urge you to complete your research by taking a look at the following:


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.

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