Is DelMar Pharmaceuticals, Inc. (NASDAQ:DMPI) A Volatile Stock?
If you're interested in DelMar Pharmaceuticals, Inc. (NASDAQ:DMPI), 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 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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 below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.
Check out our latest analysis for DelMar Pharmaceuticals
What does DMPI's beta value mean to investors?
Zooming in on DelMar Pharmaceuticals, we see it has a five year beta of 1.43. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market. If this beta value holds true in the future, DelMar Pharmaceuticals shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 DelMar Pharmaceuticals fares in that regard, below.
How does DMPI's size impact its beta?
With a market capitalisation of US$7.4m, DelMar Pharmaceuticals is a very small company by global standards. It is quite likely to be unknown to most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.
What this means for you:
Since DelMar Pharmaceuticals tends to move 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 DMPI is a good investment for you, we also need to consider important company-specific fundamentals such as DelMar Pharmaceuticals’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
Future Outlook: What are well-informed industry analysts predicting for DMPI’s future growth? Take a look at our free research report of analyst consensus for DMPI’s outlook.
Past Track Record: Has DMPI 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 DMPI's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how DMPI measures up against other companies on valuation. You could start with this free list of prospective options.
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.
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