If you are a shareholder in Sino-Global Shipping America Ltd’s (NASDAQ:SINO), 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 SINO. 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.
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. 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 Sino-Global Shipping America
An interpretation of SINO’s beta
Sino-Global Shipping America’s five-year beta of 2.95 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. According to this value of beta, SINO may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.
Does SINO’s size and industry impact the expected beta?
SINO, with its market capitalisation of US$13.43M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the infrastructure 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 infrastructure industry, relative to those more well-established firms in a more defensive industry. This is consistent with SINO’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
How SINO’s assets could affect its 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 SINO’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, SINO seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect SINO 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. This outcome contradicts SINO’s current beta value which indicates an above-average volatility.
What this means for you:
You may reap the gains of SINO’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 SINO. What I have not mentioned in my article here are important company-specific fundamentals such as Sino-Global Shipping America’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 SINO’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 SINO 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 SINO’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.