LiNiu Technology Group (LINU): How Does It Impact Your Portfolio?
If you are looking to invest in LiNiu Technology Group’s (NASDAQ:LINU), 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. LINU 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 market as a whole represents a beta of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
See our latest analysis for LINU
An interpretation of LINU's beta
LiNiu Technology Group's beta of 0.44 indicates that the stock value will be less variable compared to the whole stock market. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. Based on this beta value, LINU appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
How does LINU's size and industry impact its risk?
A market capitalisation of USD $13.61M puts LINU in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, LINU also operates in the hotels, restaurants and leisure industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap LINU but a low beta for the hotels, restaurants and leisure industry. This is an interesting conclusion, since both LINU’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 LINU'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 examine LINU’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, LINU doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect LINU 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 may reap the benefit of muted movements during times of economic decline by holding onto LINU. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. I recommend analysing the stock in terms of your current portfolio composition before increasing your exposure to the stock.
Are you a potential investor? Before you buy LINU, you should look at the stock in conjunction with their current portfolio holdings. LINU may be a great cushion during times of economic downturns due to its low beta and low fixed cost. However, in addition to this, I recommend taking into account its fundamentals as well before jumping into the investment.
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 LiNiu Technology Group 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 LiNiu Technology Group 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.
