For Youngevity International Inc’s (NASDAQ:YGYI) 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 YGYI. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as YGYI, because it is rare that an entire industry collapses at once. The other type of risk, which cannot be diversified away, is market risk. Every stock in the market is exposed to this risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few.
Not every stock is exposed 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. 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 Youngevity International
What is YGYI’s market risk?
With a five-year beta of 0.13, Youngevity International appears to be a less volatile company compared to the rest of the market. This means that the change in YGYI’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. Based on this beta value, YGYI appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
How does YGYI’s size and industry impact its risk?
A market capitalisation of US$87.18M puts YGYI in the category of small-cap stocks, which tends to possess higher beta than larger companies. But, YGYI’s industry, personal products, is considered to be defensive, which means it is less volatile than the market over the economic cycle. Therefore, investors can expect a high beta associated with the size of YGYI, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from YGYI’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How YGYI’s assets could affect its 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 YGYI’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. YGYI’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. As a result, this aspect of YGYI indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts YGYI’s current beta value which indicates a below-average volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto YGYI. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, YGYI may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether YGYI is a good investment for you, we also need to consider important company-specific fundamentals such as Youngevity International’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 YGYI’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 YGYI 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 YGYI’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.