All You Need To Know About Bioanalytical Systems Inc’s (NASDAQ:BASI) Risks
For Bioanalytical Systems Inc’s (NASDAQ:BASI) 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 BASI’s exposure to the wider market risk, which reflects changes in economic and political factors. Not all stocks are expose to the same level of market risk, and the market as a whole 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.
View our latest analysis for Bioanalytical Systems
What does BASI’s beta value mean?
With a five-year beta of 0.93, Bioanalytical Systems appears to be a less volatile company compared to the rest of the market. 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. BASI’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 BASI’s size and industry cause it to be more volatile?
BASI, with its market capitalisation of US$15.67M, is a small-cap stock, which generally have higher beta than similar companies of larger size. But, BASI’s industry, life sciences, 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 BASI, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from BASI’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How BASI’s assets could affect its beta
An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I test BASI’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%, BASI appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect BASI to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. This outcome contradicts BASI’s current beta value which indicates a below-average volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto BASI. Take into account your portfolio sensitivity to the market before you invest in the stock, as well as where we are in the current economic cycle. Depending on the composition of your portfolio, BASI may be a valuable stock to hold onto in order to cushion the impact of a downturn. In order to fully understand whether BASI is a good investment for you, we also need to consider important company-specific fundamentals such as Bioanalytical Systems’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 BASI’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 BASI 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 BASI’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.
