Why You Need To Look At This Factor Before Buying Aegean Marine Petroleum Network Inc (NYSE:ANW)
If you are looking to invest in Aegean Marine Petroleum Network Inc’s (NYSE:ANW), 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. ANW 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 market as a whole represents a beta 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.
See our latest analysis for Aegean Marine Petroleum Network
What does ANW’s beta value mean?
With a beta of 2.33, Aegean Marine Petroleum Network 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. According to this value of beta, ANW can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Could ANW’s size and industry cause it to be more volatile?
A market capitalisation of US$99.57M puts ANW in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, ANW’s industry, oil and gas, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. 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 is consistent with ANW’s individual beta value we discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Can ANW’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 ANW’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given a fixed to total assets ratio of over 30%, ANW seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. As a result, this aspect of ANW indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, ANW’s beta value conveys the same message.
What this means for you:
You may reap the gains of ANW’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 ANW is a good investment for you, we also need to consider important company-specific fundamentals such as Aegean Marine Petroleum Network’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is ANW’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 ANW 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 ANW’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.
