Yahoo Finance Delta Technology Holdings Limited (NASDAQ:DELT): What Does It Mean For Your Portfolio?
If you are a shareholder in Delta Technology Holdings Limited’s (NASDAQ:DELT), 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 DELT’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 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 Delta Technology Holdings
What does DELT’s beta value mean?
Delta Technology Holdings has a beta of 1.76, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. Based on this beta value, DELT 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.
Does DELT’s size and industry impact the expected beta?
DELT, with its market capitalisation of US$12.97M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, DELT’s industry, chemicals, 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 DELT’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Is DELT’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 examine DELT’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given a fixed to total assets ratio of over 30%, DELT seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. Thus, we can expect DELT to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. Similarly, DELT’s beta value conveys the same message.
What this means for you:
You could benefit from higher returns from DELT during times of economic growth. Its higher fixed cost isn’t a major concern given margins are covered with high consumer demand. Though, in times of a downturn, it may be safe to look at a more defensive stock which can cushion the impact of lower demand. In order to fully understand whether DELT is a good investment for you, we also need to consider important company-specific fundamentals such as Delta Technology Holdings’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is DELT’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 DELT 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 DELT’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.
