After a massive drop last week, Westpac Banking Corporation’s [ASX:WBC] share price has bounced back. At time of writing it has risen 1.94%, and looks like it could continue increasing.
Westpac is one of the oldest banking and financial institutions in Australia. It has branches in New Zealand and the Pacific, and offices around the world including London, New York, Hong Kong and Singapore.
Why is Westpac’s share price rising?
The Royal Banking Commission hearings currently taking place have exposed Westpac’s home loan assessment standards as being worse than the other big four banks. That’s a possible reason for the downward ‘slump’ in Westpac’s share price last week.
But despite public scrutiny from the Royal Commission, Westpac has still managed to stabilise and, today, grow its share price. Amar Chadha of Simply Wall St writes:
‘You may reap the benefit of muted movements during times of economic decline by holding onto WBC. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins.’
Also, when it comes to considering investing and buying fixed assets, this is ‘virtually non-existent in WBC’s operations’ — ‘It has low dependency on fixed costs to generate revenue.’
This means, Westpac ‘may be less volatile relative to broad market movements, compared to a company of similar size but with higher proportion of fixed assets.’
What’s next for Westpac?
Westpac could keep growing at a steady rate, or fluctuate depending on current political and social trends. It will likely remain vulnerable to future bad news from the Royal Commission into Banking. But odds are that it will always be able to restabilise itself.
As such, or investors can continue to reap the benefits of ‘muted movements during times of economic decline by holding onto WBC’. As in terms of operating leverage, Westpac’s low fixed costs can maintain margins.
Editor, Markets & Money
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