All You Need To Know About INSYS Therapeutics Inc’s (NASDAQ:INSY) Risks
If you are looking to invest in INSYS Therapeutics Inc’s (NASDAQ:INSY), 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. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This 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 of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
Check out our latest analysis for INSYS Therapeutics
What is INSY’s market risk?
INSYS Therapeutics has a beta of 1.02, 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. According to this value of beta, INSY may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.
Could INSY’s size and industry cause it to be more volatile?
INSY, with its market capitalisation of US$567.47M, is a small-cap stock, which generally have higher beta than similar companies of larger size. However, INSY operates in the biotechs industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of INSY, but a lower beta given the nature of the industry it operates in. This is an interesting conclusion, since its industry suggests INSY should be less volatile than it actually is. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can INSY’s asset-composition point to a higher 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 INSY’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, INSY seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect INSY to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. This outcome contradicts INSY’s current beta value which indicates an above-average volatility.
What this means for you:
You could benefit from higher returns during times of economic growth by holding onto INSY. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. In order to fully understand whether INSY is a good investment for you, we also need to consider important company-specific fundamentals such as INSYS Therapeutics’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for INSY’s future growth? Take a look at our free research report of analyst consensus for INSY’s outlook.
Past Track Record: Has INSY 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 INSY’s historicals for more clarity.
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.
