Why You Need To Look At This Factor Before Buying InspireMD Inc (NYSEMKT:NSPR)
For InspireMD Inc’s (AMEX:NSPR) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. NSPR 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 all stocks are expose to the same level of market risk, and the market as a whole 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.
Check out our latest analysis for InspireMD
What does NSPR’s beta value mean?
InspireMD’s five-year beta of 2.86 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, NSPR will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
Could NSPR’s size and industry cause it to be more volatile?
A market capitalisation of US$7.68M puts NSPR in the category of small-cap stocks, which tends to possess higher beta than larger companies. However, NSPR operates in the medical equipment industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap NSPR but a low beta for the medical equipment industry. This is an interesting conclusion, since its industry suggests NSPR should be less volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can NSPR’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 NSPR’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, NSPR seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect NSPR 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 NSPR’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
You could benefit from higher returns during times of economic growth by holding onto NSPR. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. In order to fully understand whether NSPR is a good investment for you, we also need to consider important company-specific fundamentals such as InspireMD’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is NSPR’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 NSPR 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 NSPR’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 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.
