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Amryt Pharma plc (LON:AMYT): How Does It Impact Your Portfolio?

Anyone researching Amryt Pharma plc (LON:AMYT) 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. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.

Some stocks mimic the volatility of the market quite closely, while others demonstrate muted, exagerrated or uncorrelated price movements. Beta is a widely used metric to measure a stock’s exposure to market risk (volatility). Before we go on, it’s worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that ‘volatility is far from synonymous with risk.’ Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is one. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

View our latest analysis for Amryt Pharma

What does AMYT’s beta value mean to investors?

Given that it has a beta of 1.79, we can surmise that the Amryt Pharma share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that Amryt Pharma shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it’s also important to consider whether Amryt Pharma is growing earnings and revenue. You can take a look for yourself, below.

AIM:AMYT Income Statement Export September 26th 18
AIM:AMYT Income Statement Export September 26th 18

Does AMYT’s size influence the expected beta?

Amryt Pharma is a noticeably small company, with a market capitalisation of UK£47.3m. Most companies this size are not always actively traded. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Since Amryt Pharma tends to moves up when the market is going up, and down when it’s going down, potential investors may wish to reflect on the overall market, when considering the stock. In order to fully understand whether AMYT is a good investment for you, we also need to consider important company-specific fundamentals such as Amryt Pharma’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

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  1. Financial Health: Are AMYT’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.

  2. 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.

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.