If you are looking to invest in Staffing 360 Solutions Inc’s (NASDAQ:STAF), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. Generally, an investor should consider two types of risk that impact the market value of STAF. The first type is company-specific risk, which can be diversified away by investing in other companies to reduce 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.
Not every stock is exposed to the same level of market risk. The most widely used metric to quantify a stock’s market risk is beta, and the market as a whole represents a beta 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.
How volatile is STAF’s share price?
Staffing 360 Solutions has a beta of 1.33, which means that its stock price experiences greater change than most. According to this beta value, STAF 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.
Could STAF’s size and industry cause it to be more volatile?
A market capitalisation of US$9.02m puts STAF in the category of small-cap stocks, which tends to possess higher beta than larger companies. In addition to size, STAF also operates in the professional services industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the professional services industry, relative to those more well-established firms in a more defensive industry. This supports our interpretation of STAF’s beta value discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Can STAF’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 STAF’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, STAF does not suffer from high fixed costs. Thus, we can expect STAF 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. However, this is the opposite to what STAF’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
You may reap the gains of STAF’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into STAF. What I have not mentioned in my article here are important company-specific fundamentals such as Staffing 360 Solutions’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for STAF’s future growth? Take a look at our free research report of analyst consensus for STAF’s outlook.
- Past Track Record: Has STAF 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 STAF’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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.