How Does Investing In Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) Impact The Volatility Of Your Portfolio?

If you’re interested in Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. 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 type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks on the market.

Some stocks are more sensitive to general market forces than others. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that ‘Volatility is far from synonymous with risk’, beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is one. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

See our latest analysis for Intercept Pharmaceuticals

What does ICPT’s beta value mean to investors?

Looking at the last five years, Intercept Pharmaceuticals has a beta of 1.33. The fact that this is well above 1 indicates that its share price movements have shown sensitivity to overall market volatility. Based on this history, investors should be aware that Intercept Pharmaceuticals are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it’s also important to consider whether Intercept Pharmaceuticals is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:ICPT Income Statement, August 8th 2019
NasdaqGS:ICPT Income Statement, August 8th 2019

Does ICPT’s size influence the expected beta?

With a market capitalisation of US$2.0b, Intercept Pharmaceuticals is a pretty big company, even by global standards. It is quite likely well known to very many investors. It takes a lot of money to influence the share price of large companies like this one. That makes it interesting to note that its share price has a history of sensitivity to market volatility. There might be some aspect of the business that means profits are leveraged to the economic cycle.

What this means for you:

Since Intercept 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 ICPT is a good investment for you, we also need to consider important company-specific fundamentals such as Intercept Pharmaceuticals’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for ICPT’s future growth? Take a look at our free research report of analyst consensus for ICPT’s outlook.
  2. Past Track Record: Has ICPT 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 ICPT’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how ICPT measures up against other companies on valuation. You could start with this free list of prospective options.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.