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What You Must Know About OncoMed Pharmaceuticals Inc’s (OMED) Risks

If you are looking to invest in OncoMed Pharmaceuticals Inc’s (NASDAQ:OMED), 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. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole represents a beta value of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.

View our latest analysis for OncoMed Pharmaceuticals

An interpretation of OMED’s beta

With a beta of 2.7, OncoMed Pharmaceuticals 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. Based on this beta value, OMED 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.

Could OMED’s size and industry cause it to be more volatile?

OMED, with its market capitalisation of USD $184.36M, is a small-cap stock, which generally have higher beta than similar companies of larger size. However, OMED operates in the biotechnology industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of OMED, but a lower beta given the nature of the industry it operates in. This is an interesting conclusion, since its industry suggests OMED should be less volatile than it actually is. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

NasdaqGS:OMED Income Statement Nov 14th 17
NasdaqGS:OMED Income Statement Nov 14th 17

How OMED’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 OMED’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, OMED seems to have a smaller dependency on fixed costs to generate revenue. Thus, we can expect OMED 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. This outcome contradicts OMED’s current beta value which indicates an above-average volatility.

What this means for you:

Are you a shareholder? You may reap the gains of OMED’s returns during times of economic growth by holding the stock. Its low fixed cost also implies that it has the flexibility to adjust its cost to preserve margins during times of a downturn. I recommend analysing the stock in terms of your current portfolio composition before deciding to invest more into OMED. For more company-specific research on OMED, check out our our free analysis plaform here.

Are you a potential investor? Before you buy OMED, you should take into account how their portfolio currently moves with the market, in addition to the current economic environment. OMED 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. Continue your research on the stock with our free fundamental research report for OMED here.


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.

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