For Sino-Global Shipping America Ltd’s (NASDAQ:SINO) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Different characteristics of a stock expose it to various levels of market risk, 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.
Check out our latest analysis for Sino-Global Shipping America
What is SINO’s market risk?
Sino-Global Shipping America has a beta of 2.84, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. Based on this beta value, 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?
With a market cap of US$23.58M, SINO falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. 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 supports our interpretation of SINO’s beta value discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
Can SINO’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 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. However, this is the opposite to what SINO’s actual beta value suggests, which is higher stock volatility relative to the market.