If you are a shareholder in iBio Inc’s (AMEX:IBIO), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Broadly speaking, there are two types of risk you should consider when investing in stocks such as IBIO. 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 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. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.Check out our latest analysis for iBio
What is IBIO’s market risk?
iBio’s beta of 0.36 indicates that the stock value will be less variable compared to the whole stock market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. Based on this beta value, IBIO appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
How does IBIO’s size and industry impact its risk?
A market capitalisation of US$18.76M puts IBIO in the category of small-cap stocks, which tends to possess higher beta than larger companies. However, IBIO operates in the biotechs industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of IBIO, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from IBIO’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is IBIO’s cost structure indicative of a high 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 examine IBIO’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. IBIO’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. Thus, we can expect IBIO to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. This outcome contradicts IBIO’s current beta value which indicates a below-average volatility.
What this means for you:
IBIO may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as IBIO is valuable to lower your risk of market exposure, in particular, during times of economic decline. What I have not mentioned in my article here are important company-specific fundamentals such as iBio’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
- Financial Health: Is IBIO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has IBIO 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 IBIO’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.