How Does Investing In Tiziana Life Sciences PLC (AIM:TILS) Impact Your Portfolio?
If you are looking to invest in Tiziana Life Sciences PLC’s (AIM:TILS), 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. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Not every stock is exposed to the same level of market risk, and the market as a whole represents a beta of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
See our latest analysis for TILS
What is TILS’s market risk?
Tiziana Life Sciences’s five-year beta of 1.09 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. Based on this beta value, TILS will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
Does TILS's size and industry impact the expected beta?
TILS, with its market capitalisation of GBP £184.04M, is a small-cap stock, which generally have higher beta than similar companies of larger size. However, TILS operates in the biotechnology industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap TILS but a low beta for the biotechnology industry. This is an interesting conclusion, since its industry suggests TILS 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 TILS'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 test TILS’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since TILS’s fixed assets are only 0.55% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect TILS to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. This outcome contradicts TILS’s current beta value which indicates an above-average volatility.
What this means for you:
Are you a shareholder? You could benefit from higher returns during times of economic growth by holding onto TILS. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. Consider the stock in terms of your other portfolio holdings, and whether it is worth investing more into TILS.
Are you a potential investor? I recommend that you look into TILS's fundamental factors such as its current valuation and financial health. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. TILS may be a great investment during times of economic growth.
Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Tiziana Life Sciences for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Tiziana Life Sciences anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
