How Does Akebia Therapeutics, Inc. (NASDAQ:AKBA) Affect Your Portfolio Volatility?

If you’re interested in Akebia Therapeutics, Inc. (NASDAQ:AKBA), 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. Volatility is considered to be a measure of risk in modern finance theory. Investors may think of volatility as falling into two main categories. 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 other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Beta is a widely used metric to measure a stock’s exposure to market risk (volatility). Before we go on, it’s worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that ‘volatility is far from synonymous with risk.’ Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

Check out our latest analysis for Akebia Therapeutics

What AKBA’s beta value tells investors

Given that it has a beta of 1.11, we can surmise that the Akebia Therapeutics share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Akebia Therapeutics 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 Akebia Therapeutics is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGM:AKBA Income Statement Export December 19th 18
NasdaqGM:AKBA Income Statement Export December 19th 18

How does AKBA’s size impact its beta?

With a market capitalisation of US$779m, Akebia Therapeutics is a small cap stock. However, it is big enough to catch the attention of professional investors. It has a relatively high beta, which is not unusual among small-cap stocks. Because it takes less capital to move the share price of a smaller company, actively traded small-cap stocks often have a higher beta that a similar large-cap stock.

What this means for you:

Since Akebia Therapeutics has a reasonably high beta, it’s worth considering why it is so heavily influenced by broader market sentiment. For example, it might be a high growth stock or have a lot of operating leverage in its business model. In order to fully understand whether AKBA is a good investment for you, we also need to consider important company-specific fundamentals such as Akebia Therapeutics’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 AKBA’s future growth? Take a look at our free research report of analyst consensus for AKBA’s outlook.
  2. Past Track Record: Has AKBA 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 AKBA’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how AKBA measures up against other companies on valuation. You could start with this free list of prospective options.

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 editorial-team@simplywallst.com.