If you are a shareholder in CTI BioPharma Corp’s (NASDAQ:CTIC), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures CTIC’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels 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.
What is CTIC’s market risk?
CTI BioPharma’s beta of 0.05 indicates that the stock value will be less variable compared to the whole stock market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. CTIC’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.
Could CTIC’s size and industry cause it to be more volatile?
With a market cap of US$263.91M, CTIC falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, CTIC operates in the biotechs industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap CTIC but a low beta for the biotechs industry. This is an interesting conclusion, since its size suggests CTIC should be more volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How CTIC’s assets could affect its 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 CTIC’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, CTIC doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
You may reap the benefit of muted movements during times of economic decline by holding onto CTIC. Its low fixed cost also means that, in terms of operating leverage, its costs are relatively malleable to preserve margins. In order to fully understand whether CTIC is a good investment for you, we also need to consider important company-specific fundamentals such as CTI BioPharma’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for CTIC’s future growth? Take a look at our free research report of analyst consensus for CTIC’s outlook.
- Past Track Record: Has CTIC 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 CTIC’s historicals for more clarity.
- 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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.