For Jason Industries Inc’s (NASDAQ:JASN) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Broadly speaking, there are two types of risk you should consider when investing in stocks such as JASN. The first risk to think about is company-specific, which can be diversified away by investing in other companies in order to lower your exposure to one particular stock. 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.
Different characteristics of a stock expose it to various levels of market risk. A popular measure of market risk for a stock is its beta, 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 Jason Industries
What is JASN’s market risk?
With a five-year beta of 0.41, Jason Industries appears to be a less volatile company compared to the rest of the market. 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. JASN’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.
Does JASN’s size and industry impact the expected beta?
With a market cap of $58.16M, JASN falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. Moreover, JASN’s industry, machinery, 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 machinery industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both JASN’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is JASN’s cost structure indicative of a high 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 test JASN’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%, JASN 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 JASN indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what JASN’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
JASN may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as JASN is valuable to lower your risk of market exposure, in particular, during times of economic decline. In order to fully understand whether XYZ is a good investment for you, we also need to consider important company-specific fundamentals such as Jason Industries’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
1. Financial Health: Is JASN’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. Valuation: What is JASN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether JASN is currently mispriced by the market.
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.