For Seres Therapeutics Inc’s (NASDAQ:MCRB) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. MCRB is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta 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 Seres Therapeutics

What is MCRB’s market risk?

With a five-year beta of 0.28, Seres Therapeutics appears to be a less volatile company compared to the rest of the market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. Based on this beta value, MCRB appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.

Does MCRB's size and industry impact the expected beta?

A market capitalisation of USD $649.82M puts MCRB in the category of small-cap stocks, which tends to possess higher beta than larger companies. However, MCRB operates in the biotechnology industry, which has commonly demonstrated muted reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap MCRB but a low beta for the biotechnology industry. This is an interesting conclusion, since its size suggests MCRB should be more volatile than it actually is. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.

Can MCRB's asset-composition point to a higher 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 MCRB’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given that fixed assets make up less than a third of the company’s total assets, MCRB doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect MCRB 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. Similarly, MCRB’s beta value conveys the same message.

What this means for you:

Are you a shareholder? You could benefit from lower risk during times of economic decline by holding onto MCRB. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. Consider the stock in terms of your other portfolio holdings, and whether it is worth investing more into MCRB.

Are you a potential investor? You should consider the stock in terms of your portfolio. It could be a valuable addition in times of an economic decline, due to its low fixed cost and low beta. However, I recommend you to also look at its fundamental factors as well, such as its current valuation and financial health to assess its investment thesis in further detail.

Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Seres Therapeutics for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Seres Therapeutics anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

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.