If you are a shareholder in ProQR Therapeutics NV’s (NASDAQ:PRQR), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Generally, an investor should consider two types of risk that impact the market value of PRQR. The first type is company-specific risk, which can be diversified away by investing in other companies to reduce exposure to one particular stock. The other type of risk, which cannot be diversified away, is market risk. Every stock in the market is exposed to this risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few.
Different characteristics of a stock expose it to various levels of market risk. The most widely used metric to quantify a stock’s market risk is beta, 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.Check out our latest analysis for ProQR Therapeutics N.V
What is PRQR’s market risk?
ProQR Therapeutics N.V’s beta of 0.69 indicates that the company is less volatile relative to the diversified market portfolio. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. Based on this beta value, PRQR appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Could PRQR’s size and industry cause it to be more volatile?
PRQR, with its market capitalisation of USD $98.77M, is a small-cap stock, which generally have higher beta than similar companies of larger size. However, PRQR operates in the biotechnology industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of PRQR, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from PRQR’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How PRQR’s assets could affect its 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 test PRQR’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since PRQR’s fixed assets are only 6.15% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect PRQR 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. Similarly, PRQR’s beta value conveys the same message.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto PRQR. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. What I have not mentioned in my article here are important company-specific fundamentals such as ProQR Therapeutics N.V’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
1. Financial Health: Is PRQR’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.
2. 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.