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Does Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO) Have A High Beta?

If you're interested in Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO), 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. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.

Some stocks are more sensitive to general market forces than others. 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. 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.

See our latest analysis for Aerpio Pharmaceuticals

What we can learn from ARPO's beta value

Zooming in on Aerpio Pharmaceuticals, we see it has a five year beta of 1.78. 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, Aerpio 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 Aerpio Pharmaceuticals fares in that regard, below.

NasdaqCM:ARPO Income Statement April 9th 2020
NasdaqCM:ARPO Income Statement April 9th 2020

How does ARPO's size impact its beta?

With a market capitalisation of US$22m, Aerpio Pharmaceuticals is a very small company by global standards. It is quite likely to be unknown to most investors. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.

What this means for you:

Since Aerpio 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Aerpio Pharmaceuticals’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Financial Health: Are ARPO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  2. 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.

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.

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. Thank you for reading.

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