If you are a shareholder in Intersections Inc’s (NASDAQ:INTX), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. INTX 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 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.
See our latest analysis for INTX
What is INTX’s market risk?
With a five-year beta of 0.69, Intersections appears to be a less volatile company compared to the rest of the market. This means that the change in INTX'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. INTX’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.
Does INTX's size and industry impact the expected beta?
A market capitalisation of USD $80.19M puts INTX in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, INTX’s industry, commercial services and supplies, 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 INTX but a low beta for the commercial services and supplies industry. It seems as though there is an inconsistency in risks portrayed by INTX’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is INTX'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 test INTX’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, INTX seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect INTX 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. This is consistent with is current beta value which also indicates low volatility.