|By Gabriel Shpitalnik|
In the world of biotechnology stocks, volatility is the name of the game. Axcella Health (AXLA), a prominent player in the industry, is currently experiencing a surge in its stock price, which could potentially signal real growth opportunities. With a Day Typical Price of $4.73 and a Possible Upside Price of 43.9, the company's current market dynamics present an intriguing scenario for investors. Despite a loss of $5 per share estimated for the current and next fiscal year, the company's Daily Balance Of Power at 0.6429 indicates a strong bullish trend. However, with an Analyst Overall Consensus rating of 'Hold', investors are advised to tread carefully. Considering an investment horizon of 90 days, Axcella Health is projected to yield a return on investment that is 64.69 times higher than the market average. However, it's important to note that the company's volatility is also 64.69 times greater than its market benchmark. It trades approximately 0.11 of its potential returns per unit of risk, while the Dow Jones Industrial Average is currently generating roughly -0.03 per unit of risk. While some investors are intrigued by the biotechnology sector, it is prudent to examine Axcella Health more closely to better assess its risk-reward profile. We will evaluate the likelihood of Axcella Health generating above-average margins within the next two to three weeks.
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Reviewed by Ellen Johnson
The company, Axcella Health, currently has liabilities amounting to 2.16 million. Its Debt to Equity (D/E) ratio stands at 3.02, indicating that the company heavily relies on borrowed funds for its operations. With a current ratio of 2.64, Axcella Health demonstrates sufficient liquidity to meet its financial obligations as they come due. While debt can be beneficial for Axcella Health in the short term, it could pose problems if the company struggles to repay it, either through new capital or free cash flow. In such a scenario, shareholders could potentially lose their entire investment if the company fails to meet its legal debt repayment obligations. However, a more common scenario is when companies like Axcella Health issue additional shares at discounted prices, thereby diluting the value of existing shares. In this context, debt can be a more effective tool for Axcella Health to invest in high-return growth opportunities. It's important to consider Axcella Health's use of debt in conjunction with its cash and equity positions. Axcella Health has a performance score of 8 on a scale of zero to a hundred. The company's Beta (market volatility) is 1.7737, indicating a somewhat significant risk relative to the market. As the market rises, the company is expected to outperform it. However, if the market returns are negative, Axcella Health will likely underperform. To determine if Axcella Health's expected return of 4.67 will be sustainable in the future, we have identified twenty-seven different technical indicators. These can help assess if the expected returns are sustainable. Use Axcella Health's Sortino ratio, semi variance, and the relationship between the information ratio and value at risk to analyze future returns on Axcella Health.
Main TakeawaysInvestors seeking to capitalize on volatility might find a potential gem in Axcella Health (AXLA). The biotechnology company's stock has been showing significant price movements, with a recent surge to $4.82 per share, signaling potential growth opportunities. The stock's standard deviation, a measure of price volatility, stands at a substantial 42.01, indicating a high level of price fluctuation. Axcella's potential upside, a measure of the predicted increase in a stock's price, is an impressive 59.22%. This suggests that the stock could offer substantial returns for investors willing to take on the associated risk. However, it's worth noting that the company is currently operating at a loss, with an estimated EPS (Earnings Per Share) of $-5 for both the current and next year. Therefore, investors should carefully consider their risk tolerance before investing in Axcella Health. Volatility is a rate at which the price of Axcella Health or any other equity instrument increases or decreases for a given set of returns. It is measured by calculating the standard deviation of the annualized returns over a given period of time and shows the range to which the price of Axcella Health may increase or decrease. In other words, similar to Axcella's beta indicator, it measures the risk of Axcella Health and helps estimate the fluctuations that may happen in a short period of time. So if prices of Axcella Health fluctuate rapidly in a short time span, it is termed to have high volatility, and if it swings slowly in a more extended period, it is understood to have low volatility. Please read more on our technical analysis page.
How important is Axcella Health's Liquidity
Axcella Health financial leverage refers to using borrowed capital as a funding source to finance Axcella Health ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Axcella Health financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Axcella Health's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Axcella Health's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Axcella Health's total debt and its cash.
Axcella Health Volatility DriversAxcella Health unsystematic risk is unique to Axcella Health and usually not directly affected by the market or economic environment. An example of unsystematic risk is the possibility of poor earnings or a layoff due to coronavirus. One may mitigate nonsystematic risk by buying different securities in the same industry or by buying in different sectors. For example, if you have a position in Axcella Health you can also buy Yuexiu Transport Infrastructure. You can also mitigate this risk by investing in the health care sector as well as in companies having nothing to do with it. This type of risk is also called diversifiable risk and can be understood from analyzing Axcella Health important indicators over time. Here we run a correlation analysis between relevant fundamental ratios over at least ten year period to find a relationship in the way they react to changes in Axcella Health income statement and balance sheet. Here are more details about Axcella volatility.
An Additional Perspective On Axcella Health
The current price rise of Axcella Health could raise concerns from investors as the firm is trading at a share price of 4.82 on 34,521 in volume. The company management teams may have good odds in positioning the firm resources to exploit market volatility in December. The stock standard deviation of daily returns for 90 days investing horizon is currently 42.98. The very high volatility is mostly attributed to the latest market swings and not very good earnings reports from some of the Axcella Health partners. The proof of the pudding is in the eating, and for Axcella Health (AXLA), the market seems to be tasting real growth opportunities. With the current surge in the stock's price, the potential upside is marked at a promising 59.22.Despite a high Coefficient Of Variation at 990.58, indicating a substantial risk, the Market Risk Adjusted Performance is positive at 2.4, suggesting that the stock has managed to deliver returns in spite of its volatility. Moreover, the company has a solid Current Ratio of 2.69X, hinting at its ability to meet short-term obligations. However, investors should not ignore the potential downside, as indicated by the Downside Deviation of 12.87. With a high probability of bankruptcy at 95.99%, caution is advised. Nonetheless, with a Target Price of $10.32, far exceeding the Day Typical Price of $4.73, the growth prospects for AXLA seem appealing for risk-tolerant investors. .