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Does The Synthetic Biologics, Inc. (NYSEMKT:SYN) Share Price Tend To Follow The Market?

Simply Wall St

If you own shares in Synthetic Biologics, Inc. (NYSEMKT:SYN) then it's worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks on the market.

Some stocks are more sensitive to general market forces than others. 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 Synthetic Biologics

What SYN's beta value tells investors

Given that it has a beta of 1.96, we can surmise that the Synthetic Biologics share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Synthetic Biologics 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 Synthetic Biologics is growing earnings and revenue. You can take a look for yourself, below.

AMEX:SYN Income Statement, September 6th 2019

Does SYN's size influence the expected beta?

Synthetic Biologics is a noticeably small company, with a market capitalisation of US$7.5m. Most companies this size are not always actively traded. 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:

Since Synthetic Biologics has a reasonably high beta, it's worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Synthetic Biologics’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 SYN’s future growth? Take a look at our free research report of analyst consensus for SYN’s outlook.
  2. Past Track Record: Has SYN 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 SYN's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how SYN measures up against other companies on valuation. You could start with this free list of prospective options.

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.

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. Thank you for reading.