If you are a shareholder in Atossa Genetics Inc’s (NASDAQ:ATOS), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. There are two types of risks that affect the market value of a listed company such as ATOS. The first risk to think about is company-specific, which can be diversified away by investing in other companies in order to lower your exposure to one particular stock. The second type is market risk, one that you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks in the market.
Not all stocks are expose 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. 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.Check out our latest analysis for Atossa Genetics
What does ATOS’s beta value mean?
Atossa Genetics’s five-year beta of 1.25 means that the company’s value will swing up by more than the market during prosperous times, but also drop down by more in times of downturns. This level of volatility indicates bigger risk for investors who passively invest in the stock market index. Based on this beta value, ATOS may be a stock for investors with a portfolio mainly made up of low-beta stocks. This is because during times of bullish sentiment, you can reap more of the upside with high-beta stocks compared to muted movements of low-beta holdings.
Could ATOS’s size and industry cause it to be more volatile?
ATOS, with its market capitalisation of $10.35M, is a small-cap stock, which generally have higher beta than similar companies of larger size. However, ATOS operates in the medical equipment industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap ATOS but a low beta for the medical equipment industry. It seems as though there is an inconsistency in risks from ATOS’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Is ATOS’s cost structure indicative of a high 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 ATOS’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up an insignificant portion of total assets, ATOS doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect ATOS 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. However, this is the opposite to what ATOS’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
You may reap the gains of ATOS’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into ATOS. What I have not mentioned in my article here are important company-specific fundamentals such as Atossa Genetics’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- 1. Future Outlook: What are well-informed industry analysts predicting for ATOS’s future growth? Take a look at our free research report of analyst consensus for ATOS’s outlook.
- 2. Past Track Record: Has ATOS 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 ATOS’s historicals for more clarity.
- 3. 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.