If you are looking to invest in Orgenesis Inc’s (NASDAQ:ORGS), 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 ORGS’s exposure to the wider market risk, which reflects changes in economic and political factors. Not every stock is exposed to the same level of market risk, and the market as a whole represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
What is ORGS’s market risk?
With a beta of 1.81, Orgenesis 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. According to this value of beta, ORGS can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Does ORGS’s size and industry impact the expected beta?
ORGS, with its market capitalisation of US$92.41M, is a small-cap stock, which generally have higher beta than similar companies of larger size. However, ORGS operates in the biotechs industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap ORGS but a low beta for the biotechs industry. This is an interesting conclusion, since its industry suggests ORGS should be less volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Is ORGS’s cost structure indicative of a high 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 ORGS’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Since ORGS’s fixed assets are only 15.32% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This outcome contradicts ORGS’s current beta value which indicates an above-average volatility.
What this means for you:
You may reap the gains of ORGS’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 ORGS. In order to fully understand whether ORGS is a good investment for you, we also need to consider important company-specific fundamentals such as Orgenesis’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is ORGS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has ORGS 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 ORGS’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.