If you are a shareholder in Cryoport Inc’s (NASDAQ:CYRX), 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 CYRX. 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 second risk is market-wide, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks.
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.
What is CYRX’s market risk?
With a five-year beta of 0.90, Cryoport appears to be a less volatile company compared to the rest of the market. This means that the change in CYRX’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. CYRX’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 CYRX’s size and industry cause it to be more volatile?
CYRX, with its market capitalisation of US$390.28m, is a small-cap stock, which generally have higher beta than similar companies of larger size. Conversely, the company operates in the medical equipment industry, which has been found to have low sensitivity to market-wide shocks. Therefore, investors can expect a high beta associated with the size of CYRX, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from CYRX’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Can CYRX’s asset-composition point to a higher beta?
During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I test CYRX’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since CYRX’s fixed assets are only 10.74% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This is consistent with is current beta value which also indicates low volatility.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto CYRX. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. In order to fully understand whether CYRX is a good investment for you, we also need to consider important company-specific fundamentals such as Cryoport’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for CYRX’s future growth? Take a look at our free research report of analyst consensus for CYRX’s outlook.
- Past Track Record: Has CYRX 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 CYRX’s historicals for more clarity.
- 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.
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 firstname.lastname@example.org.