Yahoo Finance How Inovio Pharmaceuticals Inc (NASDAQ:INO) Can Impact Your Portfolio Volatility
Anyone researching Inovio Pharmaceuticals Inc (NASDAQ:INO) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. 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 below one is either less volatile than the market, or more volatile but not corellated with the overall market. In comparison a stock with a beta of over one tends to be move in a similar direction to the market in the long term, but with greater changes in price.
Check out our latest analysis for Inovio Pharmaceuticals
What INO’s beta value tells investors
Zooming in on Inovio Pharmaceuticals, we see it has a five year beta of 1.73. This is above 1, so historically its share price has been influenced by the broader volatility of the stock market the market. If this beta value holds true in the future, Inovio Pharmaceuticals shares are likely to rise more than the market when the market is going up, but fall faster when the market is going down. 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 Inovio Pharmaceuticals’s revenue and earnings in the image below.
Does INO’s size influence the expected beta?
Inovio Pharmaceuticals is a small cap stock with a market capitalisation of US$506.9m. Most companies this size are actively traded. 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:
Beta only tells us that the Inovio Pharmaceuticals 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. In order to fully understand whether INO is a good investment for you, we also need to consider important company-specific fundamentals such as Inovio Pharmaceuticals’s financial health and performance track record. I urge you to continue your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for INO’s future growth? Take a look at our free research report of analyst consensus for INO’s outlook.
Past Track Record: Has INO 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 INO’s historicals for more clarity.
Other Interesting Stocks: It’s worth checking to see how INO 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.
