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Does Cytokinetics, Incorporated (NASDAQ:CYTK) Have A Volatile Share Price?

Simply Wall St

If you own shares in Cytokinetics, Incorporated (NASDAQ:CYTK) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. 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 see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that 'Volatility is far from synonymous with risk', beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is 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.

View our latest analysis for Cytokinetics

What CYTK's beta value tells investors

Given that it has a beta of 1.69, we can surmise that the Cytokinetics share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Cytokinetics shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. Beta is worth considering, but it's also important to consider whether Cytokinetics is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:CYTK Income Statement, July 26th 2019

Does CYTK's size influence the expected beta?

With a market capitalisation of US$681m, Cytokinetics is a small cap stock. However, it is big enough to catch the attention of professional investors. It's not particularly surprising that it has a higher beta than the overall market. That's because it takes less money to influence the share price of a smaller company, than a bigger company.

What this means for you:

Since Cytokinetics has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. In order to fully understand whether CYTK is a good investment for you, we also need to consider important company-specific fundamentals such as Cytokinetics’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Future Outlook: What are well-informed industry analysts predicting for CYTK’s future growth? Take a look at our free research report of analyst consensus for CYTK’s outlook.
  2. Past Track Record: Has CYTK 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 CYTK's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how CYTK measures up against other companies on valuation. You could start with this free list of prospective options.

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.

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. Thank you for reading.