If you are a shareholder in Anthera Pharmaceuticals Inc’s (NASDAQ:ANTH), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. ANTH 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 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.
An interpretation of ANTH’s beta
Anthera Pharmaceuticals has a beta of 2.77, 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, ANTH can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Could ANTH’s size and industry cause it to be more volatile?
With a market cap of US$5.86M, ANTH falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, ANTH operates in the biotechs industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap ANTH but a low beta for the biotechs industry. This is an interesting conclusion, since its industry suggests ANTH should be less volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Is ANTH’s cost structure indicative of a high 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 examine ANTH’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up an insignificant portion of total assets, ANTH doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. 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 ANTH’s current beta value which indicates an above-average volatility.
What this means for you:
You may reap the gains of ANTH’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 ANTH. What I have not mentioned in my article here are important company-specific fundamentals such as Anthera Pharmaceuticals’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for ANTH’s future growth? Take a look at our free research report of analyst consensus for ANTH’s outlook.
- Past Track Record: Has ANTH 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 ANTH’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.