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Does Oramed Pharmaceuticals Inc. (NASDAQ:ORMP) Have A Particularly Volatile Share Price?

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Anyone researching Oramed Pharmaceuticals Inc. (NASDAQ:ORMP) might want to consider the historical volatility of the share price. 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 category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

Check out our latest analysis for Oramed Pharmaceuticals

What ORMP's beta value tells investors

Given that it has a beta of 1.88, we can surmise that the Oramed Pharmaceuticals share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Oramed Pharmaceuticals shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it's also important to consider whether Oramed Pharmaceuticals is growing earnings and revenue. You can take a look for yourself, below.

NasdaqCM:ORMP Income Statement March 30th 2020
NasdaqCM:ORMP Income Statement March 30th 2020

How does ORMP's size impact its beta?

Oramed Pharmaceuticals is a rather small company. It has a market capitalisation of US$68m, which means it is probably under the radar of most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Beta only tells us that the Oramed Pharmaceuticals 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. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Oramed Pharmaceuticals’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

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

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

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