PROS Holdings Inc (PRO): How Does It Impact Your Portfolio?
If you are looking to invest in PROS Holdings Inc’s (NYSE:PRO), 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. 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 every stock is exposed to the same level of market risk, and the broad market index represents a beta value 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.
View our latest analysis for PROS Holdings
What does PRO’s beta value mean?
PROS Holdings’s five-year beta of 1.5 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. According to this value of beta, PRO 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.
Could PRO’s size and industry cause it to be more volatile?
PRO, with its market capitalisation of USD $823.84M, is a small-cap stock, which generally have higher beta than similar companies of larger size. In addition to size, PRO also operates in the software industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the software industry, relative to those more well-established firms in a more defensive industry. This is consistent with PRO’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
How PRO’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 PRO’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 account for less than a third of the company’s overall assets, PRO seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect PRO 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 outcome contradicts PRO’s current beta value which indicates an above-average volatility.
What this means for you:
Are you a shareholder? You may reap the gains of PRO’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into PRO. For next steps, take a look at PRO’s outlook to see what analysts are expecting for the stock on our free analysis plaform here.
Are you a potential investor? Before you buy PRO, you should take into account how their portfolio currently moves with the market, in addition to the current economic environment. PRO may be a valuable addition to portfolios during times of economic growth, and it may be work looking further into fundamental factors such as current valuation and financial health. You can examine these factors in our free fundamental research report for PRO 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.
