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Basilea Pharmaceutica AG (VTX:BSLN): What Does Its Beta Value Mean For Your Portfolio?

Simply Wall St

If you own shares in Basilea Pharmaceutica AG (VTX:BSLN) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks on the market.

Some stocks are more sensitive to general market forces than others. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

View our latest analysis for Basilea Pharmaceutica

What does BSLN's beta value mean to investors?

Given that it has a beta of 1.26, we can surmise that the Basilea Pharmaceutica share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Basilea Pharmaceutica are likely to rise strongly in times of greed, but sell off in times of fear. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how Basilea Pharmaceutica fares in that regard, below.

SWX:BSLN Income Statement, October 27th 2019

Could BSLN's size cause it to be more volatile?

Basilea Pharmaceutica is a noticeably small company, with a market capitalisation of CHF442m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Beta only tells us that the Basilea Pharmaceutica share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Basilea Pharmaceutica’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for BSLN’s future growth? Take a look at our free research report of analyst consensus for BSLN’s outlook.
  2. Past Track Record: Has BSLN 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 BSLN's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how BSLN measures up against other companies on valuation. You could start with this free list of prospective options.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.