All You Need To Know About ChemoCentryx Inc’s (CCXI) Risks
If you are looking to invest in ChemoCentryx Inc’s (NASDAQ:CCXI), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. CCXI is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not every stock is exposed 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 expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
View our latest analysis for ChemoCentryx
What does CCXI's beta value mean?
ChemoCentryx has a beta of 1.57, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. Based on this beta value, CCXI will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
Could CCXI's size and industry cause it to be more volatile?
CCXI, with its market capitalisation of USD $361.40M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Conversely, the company operates in the biotechnology industry, which has been found to have low sensitivity to market-wide shocks. Therefore, investors can expect a high beta associated with the size of CCXI, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from CCXI’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How CCXI'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 CCXI’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since CCXI’s fixed assets are only 0.72% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This outcome contradicts CCXI’s current beta value which indicates an above-average volatility.
What this means for you:
Are you a shareholder? You may reap the gains of CCXI's returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into CCXI.
Are you a potential investor? I recommend that you look into CCXI's fundamental factors such as its current valuation and financial health. 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. CCXI may be a great investment during times of economic growth.
Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on ChemoCentryx for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in ChemoCentryx anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
