If you're interested in Calithera Biosciences, Inc. (NASDAQ:CALA), 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. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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 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. 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.
What we can learn from CALA's beta value
Given that it has a beta of 1.85, we can surmise that the Calithera Biosciences share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Calithera Biosciences shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see Calithera Biosciences's revenue and earnings in the image below.
Could CALA's size cause it to be more volatile?
Calithera Biosciences is a rather small company. It has a market capitalisation of US$219m, which means it is probably under the radar of 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:
Beta only tells us that the Calithera Biosciences share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. In order to fully understand whether CALA is a good investment for you, we also need to consider important company-specific fundamentals such as Calithera Biosciences’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for CALA’s future growth? Take a look at our free research report of analyst consensus for CALA’s outlook.
Past Track Record: Has CALA 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 CALA's historicals for more clarity.
Other Interesting Stocks: It's worth checking to see how CALA measures up against other companies on valuation. You could start with this free list of prospective options.
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