For Kura Oncology Inc’s (NASDAQ:KURA) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. 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. Not every stock is exposed to the same level of market risk, and the broad market index represents a beta value of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.

Check out our latest analysis for Kura Oncology

What is KURA’s market risk?

With a beta of 4.12, Kura Oncology 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. According to this value of beta, KURA 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 KURA’s size and industry cause it to be more volatile?

A market capitalisation of US$605.63M puts KURA in the category of small-cap stocks, which tends to possess higher beta than larger companies. Conversely, the company operates in the biotechs industry, which has been found to have low sensitivity to market-wide shocks. Therefore, investors can expect a high beta associated with the size of KURA, but a lower beta given the nature of the industry it operates in. It seems as though there is an inconsistency in risks from KURA’s size and industry. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Is KURA’s cost structure indicative of a high 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 KURA’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 is virtually non-existent in KURA’s operations, it has low 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. This outcome contradicts KURA’s current beta value which indicates an above-average volatility.