Does Affimed NV. (NASDAQ:AFMD) Fall With The Market?
If you are looking to invest in Affimed NV.’s (NASDAQ:AFMD), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. The beta measures AFMD’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.
Check out our latest analysis for Affimed
An interpretation of AFMD’s beta
With a beta of 2.26, Affimed is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. Based on this beta value, AFMD may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.
Could AFMD’s size and industry cause it to be more volatile?
A market capitalisation of US$137.26M puts AFMD in the category of small-cap stocks, which tends to possess higher beta than larger companies. But, AFMD’s industry, biotechs, is considered to be defensive, which means it is less volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap AFMD but a low beta for the biotechs industry. This is an interesting conclusion, since its industry suggests AFMD should be less volatile than it actually is. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How AFMD’s assets could affect its beta
During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I examine AFMD’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, AFMD doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect AFMD to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. This outcome contradicts AFMD’s current beta value which indicates an above-average volatility.
What this means for you:
You may reap the gains of AFMD’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into AFMD. In order to fully understand whether AFMD is a good investment for you, we also need to consider important company-specific fundamentals such as Affimed’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 AFMD’s future growth? Take a look at our free research report of analyst consensus for AFMD’s outlook.
Past Track Record: Has AFMD 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 AFMD’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.