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Can OncoMed Pharmaceuticals Inc (NASDAQ:OMED) Improve Your Portfolio Returns?

Anyone researching OncoMed Pharmaceuticals Inc (NASDAQ:OMED) 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 second type is the broader market volatility, which you cannot diversify away, since it arises from macroeconomic factors which directly affects all the 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.

See our latest analysis for OncoMed Pharmaceuticals

What OMED’s beta value tells investors

Given that it has a beta of 1.71, we can surmise that the OncoMed Pharmaceuticals share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that OncoMed Pharmaceuticals are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it’s also important to consider whether OncoMed Pharmaceuticals is growing earnings and revenue. You can take a look for yourself, below.

NasdaqGS:OMED Income Statement Export September 12th 18
NasdaqGS:OMED Income Statement Export September 12th 18

Does OMED’s size influence the expected beta?

OncoMed Pharmaceuticals is a noticeably small company, with a market capitalisation of US$95.5m. Most companies this size are not always actively traded. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.

What this means for you:

Beta only tells us that the OncoMed 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 OMED is a good investment for you, we also need to consider important company-specific fundamentals such as OncoMed Pharmaceuticals’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

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  1. Future Outlook: What are well-informed industry analysts predicting for OMED’s future growth? Take a look at our free research report of analyst consensus for OMED’s outlook.

  2. Past Track Record: Has OMED 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 OMED’s historicals for more clarity.

  3. Other Interesting Stocks: It’s worth checking to see how OMED 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.