Yahoo Finance Before You Buy Fossil Group Inc’s (FOSL), You Should Consider This
If you are a shareholder in Fossil Group Inc’s (NASDAQ:FOSL), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures FOSL’s exposure to the wider market risk, which reflects changes in economic and political factors. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta 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.
Check out our latest analysis for Fossil Group
An interpretation of FOSL's beta
Fossil Group's beta of 0.74 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in FOSL'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. FOSL’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.
How does FOSL's size and industry impact its risk?
FOSL, with its market capitalisation of USD $461.44M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, FOSL’s industry, textiles, apparel and luxury goods, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap FOSL but a low beta for the textiles, apparel and luxury goods industry. This is an interesting conclusion, since both FOSL’s size and industry indicates the stock should have a higher beta than it currently has. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is FOSL'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 FOSL’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, FOSL appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of FOSL indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts FOSL’s current beta value which indicates a below-average volatility.
What this means for you:
Are you a shareholder? FOSL may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as FOSL is valuable to lower your risk of market exposure, in particular, during times of economic decline.
Are you a potential investor? Before you buy FOSL, you should look at the stock in conjunction with their current portfolio holdings. FOSL may be a great cushion during times of economic downturns due to its low beta. However, its high fixed cost may mean margins are squeezed if demand is low. I recommend taking into account its fundamentals as well before leaping into the investment.
Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Fossil Group for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Fossil Group anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass 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.
