Stock Analysis

Does Perma-Fix Environmental Services Inc (NASDAQ:PESI) Go Up With The Market?

NasdaqCM:PESI
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If you are a shareholder in Perma-Fix Environmental Services Inc’s (NASDAQ:PESI), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Broadly speaking, there are two types of risk you should consider when investing in stocks such as PESI. 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 type is market risk, one that you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks in the market.

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 Perma-Fix Environmental Services

An interpretation of PESI's beta

Perma-Fix Environmental Services’s beta of 0.52 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in PESI's value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. PESI’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.

NasdaqCM:PESI Income Statement Apr 12th 18
NasdaqCM:PESI Income Statement Apr 12th 18

Does PESI's size and industry impact the expected beta?

A market capitalisation of US$51.10M puts PESI in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the commercial services 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 commercial services 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 PESI’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Is PESI'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 examine PESI’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 PESI’s fixed assets are only 25.64% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect PESI to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. Similarly, PESI’s beta value conveys the same message.

What this means for you:

You could benefit from lower risk during times of economic decline by holding onto PESI. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. What I have not mentioned in my article here are important company-specific fundamentals such as Perma-Fix Environmental Services’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 PESI’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 PESI 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 PESI'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.