If you are looking to invest in Intelsat SA.’s (NYSE:I), 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. The beta measures I’s exposure to the wider market risk, which reflects changes in economic and political factors. 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 considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
What does I’s beta value mean?
Intelsat’s beta of 0.98 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. I’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.
How does I’s size and industry impact its risk?
With a market cap of US$1.99B, I falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. But, I’s industry, telecom, is considered to be defensive, which means it is less volatile than the market over the economic cycle. Therefore, investors can expect a high beta associated with the size of I, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from I’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is I’s cost structure indicative of a high 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 I’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%, I 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 I indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts I’s current beta value which indicates a below-average volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto I. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, I may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether I is a good investment for you, we also need to consider important company-specific fundamentals such as Intelsat’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for I’s future growth? Take a look at our free research report of analyst consensus for I’s outlook.
- Past Track Record: Has I 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 I’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.