What You Must Know About Uranium Participation Corporation’s (TSE:U) Market Risks
If you are a shareholder in Uranium Participation Corporation’s (TSX:U), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. U 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. Different characteristics of a stock expose it to various levels of market risk, and the broad market index represents a beta value of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
Check out our latest analysis for Uranium Participation
An interpretation of U’s beta
Uranium Participation’s beta of 0.19 indicates that the stock value will be less variable compared to the whole stock 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. U’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 U’s size and industry impact the expected beta?
U, with its market capitalisation of CA$501.98M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, U also operates in the capital markets industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap U but a low beta for the capital markets industry. It seems as though there is an inconsistency in risks portrayed by U’s size and industry relative to its actual beta value.
How U’s assets could affect its 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 U’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Considering fixed assets is virtually non-existent in U’s operations, it has low dependency on fixed costs to generate revenue. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
U 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 U is valuable to lower your risk of market exposure, in particular, during times of economic decline. In order to fully understand whether U is a good investment for you, we also need to consider important company-specific fundamentals such as Uranium Participation’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for U’s future growth? Take a look at our free research report of analyst consensus for U’s outlook.
Past Track Record: Has U been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of U’s historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks 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.
