If you own shares in OraSure Technologies, Inc. (NASDAQ:OSUR) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. 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 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 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 below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.
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What does OSUR’s beta value mean to investors?
Zooming in on OraSure Technologies, we see it has a five year beta of 1.46. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market the market. If the past is any guide, we would expect that OraSure Technologies 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 OraSure Technologies is growing earnings and revenue. You can take a look for yourself, below.
Could OSUR’s size cause it to be more volatile?
OraSure Technologies is a small company, but not tiny and little known. It has a market capitalisation of US$757m, 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 OraSure Technologies 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. In order to fully understand whether OSUR is a good investment for you, we also need to consider important company-specific fundamentals such as OraSure Technologies’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
- Future Outlook: What are well-informed industry analysts predicting for OSUR’s future growth? Take a look at our free research report of analyst consensus for OSUR’s outlook.
- Past Track Record: Has OSUR 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 OSUR’s historicals for more clarity.
- Other Interesting Stocks: It’s worth checking to see how OSUR measures up against other companies on valuation. You could start with this free list of prospective options.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.