What You Must Know About OncoCyte Corporation’s (NYSEMKT:OCX) Market Risks
For OncoCyte Corporation’s (AMEX:OCX) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. 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 broad market index 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.
See our latest analysis for OncoCyte
What is OCX’s market risk?
OncoCyte has a beta of 2.73, 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, OCX 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.
Does OCX’s size and industry impact the expected beta?
A market capitalisation of US$47.14M puts OCX in the category of small-cap stocks, which tends to possess higher beta than larger companies. Conversely, the company operates in the biotechs 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 OCX, but a lower beta given the nature of the industry it operates in. This is an interesting conclusion, since its industry suggests OCX 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.
Can OCX’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 OCX’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since OCX’s fixed assets are only 5.85% 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. However, this is the opposite to what OCX’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
You could benefit from higher returns during times of economic growth by holding onto OCX. 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 OCX is a good investment for you, we also need to consider important company-specific fundamentals such as OncoCyte’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 OCX’s future growth? Take a look at our free research report of analyst consensus for OCX’s outlook.
Financial Health: Is OCX’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.
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.
