For NanoViricides Inc’s (AMEX:NNVC) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. The beta measures NNVC’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 broad market index represents a beta value 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.
What does NNVC’s beta value mean?
NanoViricides’s beta of 0.18 indicates that the company is less volatile relative to the diversified market portfolio. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. NNVC’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.
Could NNVC’s size and industry cause it to be more volatile?
A market capitalisation of US$56.37M puts NNVC in the category of small-cap stocks, which tends to possess higher beta than larger companies. But, NNVC’s industry, biotechs, is considered to be defensive, which means it is less volatile than the market over the economic cycle. Therefore, investors can expect a high beta associated with the size of NNVC, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from NNVC’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How NNVC’s assets could affect its 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 NNVC’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, NNVC appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of NNVC indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts NNVC’s current beta value which indicates a below-average volatility.
What this means for you:
NNVC may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as NNVC is valuable to lower your risk of market exposure, in particular, during times of economic decline. What I have not mentioned in my article here are important company-specific fundamentals such as NanoViricides’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- 1. Financial Health: Is NNVC’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.
- 2. Past Track Record: Has NNVC 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 NNVC’s historicals for more clarity.
- 3. 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.