How Does Investing In NewLink Genetics Corporation (NASDAQ:NLNK) Impact Your Portfolio?

If you’re interested in NewLink Genetics Corporation (NASDAQ:NLNK), 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. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the 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. 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. 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 NewLink Genetics

What we can learn from NLNK’s beta value

Given that it has a beta of 1.36, we can surmise that the NewLink Genetics share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that NewLink Genetics are likely to rise strongly in times of greed, but sell off in times of fear. Many would argue that beta is useful in position sizing, but fundamental metrics such as revenue and earnings are more important overall. You can see NewLink Genetics’s revenue and earnings in the image below.

NasdaqGM:NLNK Income Statement Export August 21st 18
NasdaqGM:NLNK Income Statement Export August 21st 18

How does NLNK’s size impact its beta?

NewLink Genetics is a rather small company. It has a market capitalisation of US$101.22m, which means it is probably under the radar of most investors. Relatively few investors can influence the price of a smaller company, compared to a large company. This could explain the high beta value, in this case.

What this means for you:

Beta only tells us that the NewLink Genetics share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there’s plenty more to learn. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as NewLink Genetics’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 NLNK’s future growth? Take a look at our free research report of analyst consensus for NLNK’s outlook.
  2. Past Track Record: Has NLNK 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 NLNK’s historicals for more clarity.
  3. Other Interesting Stocks: It’s worth checking to see how NLNK 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.