For Marathon Patent Group Inc’s (NASDAQ:MARA) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This 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.
An interpretation of MARA’s beta
With a beta of 2.3, Marathon Patent Group is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. Based on this beta value, MARA 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.
Does MARA’s size and industry impact the expected beta?
A market capitalisation of US$26.55M puts MARA in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the professional services industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect higher beta for small-cap stocks in a cyclical industry compared to larger stocks in a defensive industry. This supports our interpretation of MARA’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
How MARA’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 MARA’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%, MARA 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 MARA indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, MARA’s beta value conveys the same message.
What this means for you:
You may reap the gains of MARA’s returns in times of an economic boom. Though the business does have higher fixed cost than what is considered safe, during times of growth, consumer demand may be high enough to not warrant immediate concerns. However, during a downturn, a more defensive stock can cushion the impact of this risk. In order to fully understand whether MARA is a good investment for you, we also need to consider important company-specific fundamentals such as Marathon Patent Group’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is MARA’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has MARA 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 MARA’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.