SAExploration Holdings Inc (NASDAQ:SAEX): Risks You Need To Consider Before Buying
If you are a shareholder in SAExploration Holdings Inc’s (NASDAQ:SAEX), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures SAEX’s exposure to the wider market risk, which reflects changes in economic and political factors. 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
See our latest analysis for SAExploration Holdings
What is SAEX’s market risk?
With a five-year beta of 0.01, SAExploration Holdings 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. SAEX’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.
How does SAEX’s size and industry impact its risk?
A market capitalisation of USD $20.73M puts SAEX in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, SAEX’s industry, energy services, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the energy services industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by SAEX’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can SAEX’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 test SAEX’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, SAEX seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect SAEX 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 SAEX. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. Consider the stock in terms of your other portfolio holdings, and whether it is worth investing more into SAEX. For more company-specific research on SAEX, check out our our free analysis plaform here.
Are you a potential investor? You should consider the stock in terms of your portfolio. It could be a valuable addition in times of an economic decline, due to its low fixed cost and low beta. However, I recommend you to also look at its fundamental factors as well, such as its current valuation and financial health to assess its investment thesis in further detail. Continue your research on the stock with our free fundamental research report for SAEX 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.
