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If you are looking to invest in Biomark Diagnostics Inc’s (DB:20B), 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. The beta measures 20B’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels 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.
View our latest analysis for Biomark Diagnostics
What is 20B’s market risk?
Biomark Diagnostics has a beta of 3.81, which means that the percentage change in its stock value will be higher than the entire market in times of booms and busts. A high level of beta means investors face higher risk associated with potential gains and losses driven by market movements. According to this value of beta, 20B will help diversify your portfolio, if it currently comprises of low-beta stocks. This will be beneficial for portfolio returns, in particular, when current market sentiment is positive.
Could 20B’s size and industry cause it to be more volatile?
With a market cap of €2.64M, 20B falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, 20B 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 20B, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from 20B’s size and industry. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How 20B’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 examine 20B’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, 20B seems to have a smaller dependency on fixed costs to generate revenue. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. However, this is the opposite to what 20B’s actual beta value suggests, which is higher stock volatility relative to the market.