© 2017 - Invest In Nexus NXS Mining Company
If you are looking to invest in Nexus Gold Corp’s (), 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. There are two types of risks that affect the market value of a listed company such as NXS. 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 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 all stocks are expose 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 considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.

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What does NXS's beta value mean? With a beta of 2.16, Nexus Gold is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. According to this value of beta, NXS 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.
How does NXS's size and industry impact its risk? NXS, with its market capitalisation of CAD $14.41M, is a small-cap stock, which generally have higher beta than similar companies of larger size.
In addition to size, NXS also operates in the materials 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 is consistent with NXS’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.
Can NXS's asset-composition point to a higher 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 NXS’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. NXS'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.
Thus, we can expect NXS to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. This is consistent with is current beta value which also indicates high volatility.
What this means for you: Are you a shareholder? You may reap the gains of NXS's returns in times of an economic boom. Though the business does have higher fixed cost than what is considered safe, during times of growth, consumer demand may be high enough to not warrant immediate concerns. However, during a downturn, a more defensive stock can cushion the impact of this risk.
Are you a potential investor? Before you buy NXS, you should factor how your portfolio currently moves with the wider market, and where we are in the economic cycle.
This stock could be an outperformer during times of growth, and it may be worth taking a deeper dive into the fundamentals to crystalize your thoughts on NXS. 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. 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 Nexus Gold anymore, you can use our free platform to see my list of over. 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. MarketWatch With the market providing strong extensions over the last several months, we had to review our shorter-term targets for the bull market which began in 2009.
During this past week, almost every bounce we saw was corrective in nature, which mainly kept me viewing the market as being in a weak posture, signaling that we will likely test the 2796 level on the S&P 500(^GSPC). While it seems I may have wrongly given the bull market the benefit of the doubt last weekend, as the pullback we expected has now broken below the 2800 region support we cited last weekend, this break of support makes the much stronger immediate bullish expectation much less likely.
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