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Catabasis Pharmaceuticals, Inc. (NASDAQ:CATB): What Does Its Beta Value Mean For Your Portfolio?

Simply Wall St

If you're interested in Catabasis Pharmaceuticals, Inc. (NASDAQ:CATB), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Beta can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said 'volatility is far from synonymous with risk' in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of one. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

View our latest analysis for Catabasis Pharmaceuticals

What we can learn from CATB's beta value

Looking at the last five years, Catabasis Pharmaceuticals has a beta of 1.72. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. If the past is any guide, we would expect that Catabasis Pharmaceuticals shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it's also important to consider whether Catabasis Pharmaceuticals is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGM:CATB Income Statement, November 18th 2019

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

With a market capitalisation of US$60m, Catabasis Pharmaceuticals is a very small company by global standards. It is quite likely to be unknown to most investors. 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:

Since Catabasis Pharmaceuticals tends to moves up when the market is going up, and down when it's going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether CATB is a good investment for you, we also need to consider important company-specific fundamentals such as Catabasis Pharmaceuticals’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 CATB’s future growth? Take a look at our free research report of analyst consensus for CATB’s outlook.
  2. Past Track Record: Has CATB 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 CATB's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how CATB 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.