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Does Market Volatility Impact Veracyte, Inc.'s (NASDAQ:VCYT) Share Price?

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Simply Wall St
·3 min read
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If you're interested in Veracyte, Inc. (NASDAQ:VCYT), 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 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 mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. 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 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 Veracyte

What does VCYT's beta value mean to investors?

Given that it has a beta of 1.13, we can surmise that the Veracyte share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Veracyte are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether Veracyte is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGM:VCYT Income Statement, February 26th 2020
NasdaqGM:VCYT Income Statement, February 26th 2020

Does VCYT's size influence the expected beta?

Veracyte is a small company, but not tiny and little known. It has a market capitalisation of US$1.1b, which means it would be on the radar of intstitutional 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 Veracyte tends to moves 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Veracyte’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for VCYT’s future growth? Take a look at our free research report of analyst consensus for VCYT’s outlook.

  2. Past Track Record: Has VCYT 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 VCYT's historicals for more clarity.

  3. Other Interesting Stocks: It's worth checking to see how VCYT 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.