It has been quite the year for Sorrento Therapeutics (NASDAQ:SRNE). For investors as well as the population at large, SRNE stock is still in position to deliver something more powerful both on and off the price chart.
The past year has seen its share of threats in small-cap biotech company Sorrento. Back in October amid increasingly dim drug prospects, the stock’s valuation had shrunk by roughly 85%. The company saw shares tumble from a relative high of $10.65 in February 2018, to a stock price of around $1.50 and market cap valuation of less than $300 million.
But rather than the Grim Reaper at Sorrento’s doorstep, reports of private equity knocking with an offer to buy the company for about $1 billion, or $7 a share, sent SRNE stock spiking as high as $5.09 by early January.
The enthusiasm proved short-lived. Investors began the process with profit-taking as shares sank by about 20%. Despite the company’s board officially rejecting the buyout in late January on valuation grounds, investors elected to put a gap-filling nail into the stock. By March 18 during the height of the coronavirus-driven bear market, Sorrento had retraced the entirety of its rally with a low of $1.55.
SRNE Stock Turnaround
But the stock is now fetching $8.15 and valued at around $1.67 billion in market capitalization. Behind the past few months turnaround, the outfit’s Abivertinib drug inhibitor thrust shares into a pool of biotechs with the potential to combat Covid-19. Now that promise is looking one step closer to a reality.
Behind Monday’s well-bid gain of around 18%, Sorrento has received FDA clearance to initiate a Phase 2 trial for Covid-19 patients with moderate to severe pulmonary symptoms. The green light puts Sorrento in good company with a handful of other biotechs such as Moderna (NASDAQ:MRNA), Gilead Sciences (NASDAQ:GILD) and Inovio Pharmaceuticals (NASDAQ:INO) with drugs and therapies which may just yet go the distance in fighting the coronavirus.
SRNE Stock Monthly Price Chart
Source: Charts by TradingView
Over the last several years Sorrento has had its share of near-fatal price collapses, as well as a handful of shorter-lived, optimistic price spikes. But today’s bid does appear a bit more promising than those past bullish episodes. Despite gains of roughly 450% from its March low, Sorrento has worked its way into a position supportive of momentum and higher prices to come.
Backing this bullish outlook, Monday’s gain pushed shares for a second time back above the June inside doji decision candle high of $7.22. It’s bullish confirmation for May’s massive volume-shattering rally. That’s not all that’s making the case for new highs, either.
The price action over this period has allowed the stock’s narrow and pinched Bollinger Bands to open up, while the near entirely of Sorrento’s July candlestick has held above the potential technical barrier. It’s bullish as well. With stochastics overbought but showing no signs that SRNE’s trend will falter, there are definite reasons to be upbeat on the stock right now.
For investors agreeable with today’s outlook and see new highs in 2020’s unfolding back-half, I’d recommend a bull call spread for its superior combination of upside leverage and protective qualities.
One preferred play of this type is the December $11 / $16 call vertical. With shares at $8.15, the position costs 65 cents to enter and sets risk at roughly 8% of owning shares. That of course could always come in handy.
More opportunistically, should momentum prevail and maybe another type of breakthrough to benefit the population at large, a potential 670% return also compares very favorably to an approximate double in shares by the tail-end of 2020.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
