If you are looking to invest in iBio Inc’s (AMEX:IBIO), 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. Broadly speaking, there are two types of risk you should consider when investing in stocks such as IBIO. 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.
Not every stock is exposed to the same level 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. 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 iBio
What does IBIO’s beta value mean?
With a five-year beta of 0.91, iBio appears to be a less volatile company compared to the rest of the market. 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. IBIO’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Could IBIO’s size and industry cause it to be more volatile?
With a market cap of USD $28.30M, IBIO falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, IBIO 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 IBIO, but a lower beta given the nature of the industry it operates in. This is an interesting conclusion, since its size suggests IBIO should be more volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How IBIO’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 examine IBIO’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. IBIO’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. Thus, we can expect IBIO to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. However, this is the opposite to what IBIO’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
Are you a shareholder? IBIO may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as IBIO is valuable to lower your risk of market exposure, in particular, during times of economic decline.
Are you a potential investor? Depending on the composition of your portfolio, IBIO may be a valuable addition to cushion the impact of a downturn. Potential investors should look into its fundamental factors such as its current valuation and financial health. Take into account your portfolio sensitivity to the market before you invest in IBIO, as well as where we are in the current economic cycle.
Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on iBio for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in iBio anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.