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Why You Need To Look At This Factor Before Buying Snoozebox Holdings plc (AIM:ZZZ)

For Snoozebox Holdings plc’s (AIM:ZZZ) 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. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.

View our latest analysis for Snoozebox Holdings

What is ZZZ’s market risk?

With a beta of 1.18, Snoozebox Holdings 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, ZZZ may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.

How does ZZZ’s size and industry impact its risk?

With a market cap of GBP £1.17M, ZZZ falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, ZZZ also operates in the hotels, restaurants and leisure industry, which has commonly demonstrated strong reactions to market-wide shocks. So, investors should expect a larger beta for smaller companies operating in a cyclical industry in contrast with lower beta for larger firms in a more defensive industry. This is consistent with ZZZ’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.

AIM:ZZZ Income Statement Nov 1st 17
AIM:ZZZ Income Statement Nov 1st 17

Can ZZZ’s asset-composition point to a higher beta?

During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I examine ZZZ’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, ZZZ 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 ZZZ indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, ZZZ’s beta value conveys the same message.

What this means for you:

Are you a shareholder? You could benefit from higher returns from ZZZ during times of economic growth. Its higher fixed cost isn’t a major concern given margins are covered with high consumer demand. However, in times of a downturn, it may be safe to look at a more defensive stock which can cushion the impact of lower demand. For more company-specific research on ZZZ, check out our our free analysis plaform here.

Are you a potential investor? I recommend that you look into ZZZ’s fundamental factors such as its current valuation and financial health as well. 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. ZZZ may be a great investment during times of economic growth. You can examine these factors in our free fundamental research report for ZZZ 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.

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