What You Must Know About Portola Pharmaceuticals Inc’s (NASDAQ:PTLA) Market Risks
If you own shares in Portola Pharmaceuticals Inc (NASDAQ:PTLA) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.
Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Beta is a widely used metric to measure a stock’s exposure to market risk (volatility). Before we go on, it’s worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that ‘volatility is far from synonymous with risk.’ Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.
See our latest analysis for Portola Pharmaceuticals
What we can learn from PTLA’s beta value
Zooming in on Portola Pharmaceuticals, we see it has a five year beta of 1.65. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market the market. If the past is any guide, we would expect that Portola Pharmaceuticals shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Share price volatility is well worth considering, but most long term investors consider the history of revenue and earnings growth to be more important. Take a look at how Portola Pharmaceuticals fares in that regard, below.
How does PTLA’s size impact its beta?
Portola Pharmaceuticals is a small company, but not tiny and little known. It has a market capitalisation of US$1.6b, which means it would be on the radar of intstitutional investors. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.
What this means for you:
Since Portola Pharmaceuticals tends to moves up when the market is going up, and down when it’s going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether PTLA is a good investment for you, we also need to consider important company-specific fundamentals such as Portola Pharmaceuticals’s financial health and performance track record. I highly recommend you dive deeper by considering the following:
Future Outlook: What are well-informed industry analysts predicting for PTLA’s future growth? Take a look at our free research report of analyst consensus for PTLA’s outlook.
Past Track Record: Has PTLA 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 PTLA’s historicals for more clarity.
Other Interesting Stocks: It’s worth checking to see how PTLA measures up against other companies on valuation. You could start with this free list of prospective options.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
