For InfoSonics Corporation’s (NASDAQ:IFON) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. IFON 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 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.
What does IFON’s beta value mean?
InfoSonics’s beta of 0.55 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in IFON’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. IFON’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
How does IFON’s size and industry impact its risk?
A market capitalisation of USD $5.37M puts IFON in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, IFON also operates in the communications equipment industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap IFON but a low beta for the communications equipment industry. This is an interesting conclusion, since both IFON’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can IFON’s asset-composition point to a higher 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 examine IFON’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, IFON 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 IFON indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what IFON’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
Are you a shareholder? IFON may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as IFON is valuable to lower your risk of market exposure, in particular, during times of economic decline. For more company-specific research on IFON, check out our our free analysis plaform here.
Are you a potential investor? Before you buy IFON, you should look at the stock in conjunction with their current portfolio holdings. IFON may be a great cushion during times of economic downturns due to its low beta. However, its high fixed cost may mean margins are squeezed if demand is low. I recommend taking into account its fundamentals as well before leaping into the investment. Continue your research on the stock with our free fundamental research report for IFON 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.