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How Does Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) Affect Your Portfolio Volatility?

Simply Wall St

If you're interested in Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT), 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 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.

View our latest analysis for Intercept Pharmaceuticals

What does ICPT's beta value mean to investors?

Given that it has a beta of 1.77, we can surmise that the Intercept Pharmaceuticals share price has been fairly sensitive to market volatility (over the last 5 years). If this beta value holds true in the future, Intercept 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. Beta is worth considering, but it's also important to consider whether Intercept Pharmaceuticals is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:ICPT Income Statement May 3rd 2020

How does ICPT's size impact its beta?

With a market capitalisation of US$2.5b, Intercept Pharmaceuticals is a pretty big company, even by global standards. It is quite likely well known to very many investors. It has a relatively high beta, suggesting it may be somehow leveraged to macroeconomic conditions. For example, it might be a high growth stock with lots of investors trading the shares. It's notable when large companies to have high beta values, because it usually takes substantial capital flows to move their share prices.

What this means for you:

Since Intercept 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 ICPT is a good investment for you, we also need to consider important company-specific fundamentals such as Intercept Pharmaceuticals’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 ICPT’s future growth? Take a look at our free research report of analyst consensus for ICPT’s outlook.
  2. Past Track Record: Has ICPT 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 ICPT's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how ICPT 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.

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.