Stock Analysis

How Does Investing In Sato office and Houseware supplies SA (ATH:SATOK) Impact Your Portfolio?

ATSE:SATOK
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For Sato office and Houseware supplies SA’s (ATSE:SATOK) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. There are two types of risks that affect the market value of a listed company such as SATOK. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as SATOK, because it is rare that an entire industry collapses at once. The second risk is market-wide, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks.

Not all stocks are expose to the same level of market risk. A widely-used metric to measure a stock's market risk is beta, and the broad market index 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.

See our latest analysis for Sato office and Houseware supplies

What is SATOK’s market risk?

Sato office and Houseware supplies has a beta of 2.71, 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, SATOK will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.

ATSE:SATOK Income Statement Mar 20th 18
ATSE:SATOK Income Statement Mar 20th 18

How does SATOK's size and industry impact its risk?

With a market cap of €4.25M, SATOK falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, SATOK’s industry, commercial services, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the commercial services industry, relative to those more well-established firms in a more defensive industry. This supports our interpretation of SATOK’s beta value discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.

Can SATOK'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 SATOK’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%, SATOK 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 SATOK indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, SATOK’s beta value conveys the same message.

What this means for you:

You may reap the gains of SATOK'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. What I have not mentioned in my article here are important company-specific fundamentals such as Sato office and Houseware supplies’s financial health and performance track record. I urge you to complete your research by taking a look at the following:

  1. Financial Health: Is SATOK’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.
  2. Past Track Record: Has SATOK 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 SATOK's historicals for more clarity.
  3. 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.