Yahoo Finance How Does Investing In ADVFN plc (LON:AFN) Impact Your Portfolio?
If you are a shareholder in ADVFN plc’s (AIM:AFN), 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 AFN’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.
View our latest analysis for ADVFN
What is AFN’s market risk?
ADVFN’s beta of 0.53 indicates that the company is less volatile relative to the diversified market portfolio. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. AFN’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.
Could AFN’s size and industry cause it to be more volatile?
With a market cap of UK£8.58M, AFN falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Furthermore, the company operates in the capital markets industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the capital markets 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 AFN’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can AFN’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 AFN’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since AFN’s fixed assets are only 1.31% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
You may reap the benefit of muted movements during times of economic decline by holding onto AFN. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. What I have not mentioned in my article here are important company-specific fundamentals such as ADVFN’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
Financial Health: Is AFN’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 AFN 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 AFN’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.
