Yahoo Finance Should You Have Dynavax Technologies Corporation’s (DVAX) In Your Portfolio?
If you are looking to invest in Dynavax Technologies Corporation’s (NASDAQ:DVAX), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Not every stock is exposed to the same level of market risk, and the broad market index represents a beta value 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 Dynavax Technologies
An interpretation of DVAX's beta
With a beta of 1.54, Dynavax Technologies is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. According to this value of beta, DVAX 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.
How does DVAX's size and industry impact its risk?
With a market cap of USD $1.25B, DVAX falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. But, DVAX’s industry, biotechnology, is considered to be defensive, which means it is less volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap DVAX but a low beta for the biotechnology industry. It seems as though there is an inconsistency in risks from DVAX’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
How DVAX's assets could affect its 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 test DVAX’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets account for less than a third of the company's overall assets, DVAX seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect DVAX 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 DVAX’s actual beta value suggests, which is higher stock volatility relative to the market.
What this means for you:
Are you a shareholder? You could benefit from higher returns during times of economic growth by holding onto DVAX. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. Consider the stock in terms of your other portfolio holdings, and whether it is worth investing more into DVAX.
Are you a potential investor? Before you buy DVAX, you should take into account how their portfolio currently moves with the market, in addition to the current economic environment. DVAX may be a valuable addition to portfolios during times of economic growth, and it may be work looking further into fundamental factors such as current valuation and financial health.
Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Dynavax Technologies for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Dynavax Technologies anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass 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.
