Yahoo Finance Absolute Software Corporation (TSE:ABT): How Does It Impact Your Portfolio?
If you are looking to invest in Absolute Software Corporation’s (TSE:ABT), 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. ABT is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not every stock is exposed to the same level of market risk, and the market as a whole 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.
See our latest analysis for Absolute Software
How volatile is ABT’s share price?
With a beta of 1.05, Absolute Software is a stock that tends to see greater volatility than the market at large. According to this beta value, ABT 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 ABT’s size and industry cause it to be more volatile?
With a market cap of US$310.53m, ABT falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, ABT also operates in the software industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect higher beta for small-cap stocks in a cyclical industry compared to larger stocks in a defensive industry. This supports our interpretation of ABT’s beta value discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Can ABT’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 examine ABT’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 ABT’s fixed assets are only 6.33% 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 ABT 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 ABT’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 ABT’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 ABT. What I have not mentioned in my article here are important company-specific fundamentals such as Absolute Software’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for ABT’s future growth? Take a look at our free research report of analyst consensus for ABT’s outlook.
Past Track Record: Has ABT 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 ABT’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 editorial-team@simplywallst.com.
