Odyssey Marine Exploration Inc (OMEX)

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Should You Have Odyssey Marine Exploration Inc’s (NASDAQ:OMEX) In Your Portfolio?
Simply Wall St.
Miguel Kauffman
Simply Wall St.January 22, 2018


If you are a shareholder in Odyssey Marine Exploration Inc’s (NASDAQ:OMEX), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of 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. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta 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.

View our latest analysis for Odyssey Marine Exploration

An interpretation of OMEX’s beta
Odyssey Marine Exploration’s five-year beta of 3.29 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, OMEX 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 OMEX’s size and industry impact the expected beta?
OMEX, with its market capitalisation of USD $32.63M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the commercial services industry, which has been found to have high sensitivity 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 OMEX’s individual beta value we discussed above. Next, we will examine the fundamental factors which can cause cyclicality in the stock.

NasdaqCM:OMEX Income Statement Jan 22nd 18
NasdaqCM:OMEX Income Statement Jan 22nd 18
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Is OMEX’s cost structure indicative of a high 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 OMEX’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, OMEX seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect OMEX 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 OMEX’s actual beta value suggests, which is higher stock volatility relative to the market.

What this means for you:
You may reap the gains of OMEX’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into OMEX. What I have not mentioned in my article here are important company-specific fundamentals such as Odyssey Marine Exploration’s financial health and performance track record. I urge you to complete your research by taking a look at the following:

1. Financial Health: Is OMEX’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.
2. Past Track Record: Has OMEX 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 OMEX’s historicals for more clarity.
3. 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.
https://finance.yahoo.com/news/odyssey-marine-exploration-inc-nasdaq-202043839.html