Lightbridge Corporation (LTBR): What Does It Mean For Your Portfolio?
For Lightbridge Corporation’s (NASDAQ:LTBR) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. LTBR 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 all stocks are expose 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.
Check out our latest analysis for Lightbridge
An interpretation of LTBR's beta
With a five-year beta of 0.49, Lightbridge appears to be a less volatile company compared to the rest of the market. 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. LTBR'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.
Does LTBR's size and industry impact the expected beta?
LTBR, with its market capitalisation of USD $11.28M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, LTBR also operates in the professional services industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap LTBR but a low beta for the professional services industry. It seems as though there is an inconsistency in risks portrayed by LTBR’s size and industry relative to its actual beta value.
Can LTBR'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 test LTBR’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets is virtually non-existent in LTBR's operations, it has low dependency on fixed costs to generate revenue. Thus, we can expect LTBR 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. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto LTBR. 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, LTBR may be a valuable stock to hold onto in order to cushion the impact of a downturn.
Are you a potential investor? Before you buy LTBR, you should look at the stock in conjunction with their current portfolio holdings. LTBR may be a great cushion during times of economic downturns due to its low beta, but before leaping into the investment, I recommend taking into account its fundamentals as well.
Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Lightbridge for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Lightbridge anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
