Does Intra-Cellular Therapies Inc (NASDAQ:ITCI) Have A High Beta?
If you own shares in Intra-Cellular Therapies Inc (NASDAQ:ITCI) 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 other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.
Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. 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. 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 Intra-Cellular Therapies
What does ITCI’s beta value mean to investors?
Zooming in on Intra-Cellular Therapies, we see it has a five year beta of 1.11. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market the market. If this beta value holds true in the future, Intra-Cellular Therapies 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 Intra-Cellular Therapies is growing earnings and revenue. You can take a look for yourself, below.
How does ITCI’s size impact its beta?
With a market capitalisation of US$1.0b, Intra-Cellular Therapies 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:
Beta only tells us that the Intra-Cellular Therapies 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 ITCI is a good investment for you, we also need to consider important company-specific fundamentals such as Intra-Cellular Therapies’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 ITCI’s future growth? Take a look at our free research report of analyst consensus for ITCI’s outlook.
Past Track Record: Has ITCI 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 ITCI’s historicals for more clarity.
Other Interesting Stocks: It’s worth checking to see how ITCI measures up against other companies on valuation. You could start with this free list of prospective options.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
