CNBC’s Jim Cramer recently discussed some of the “clueless buying” that’s been taking place in the markets. In particular, the Mad Money host is confounded about the Aug. 4 buying in Sorrento Therapeutics (NASDAQ:SRNE) stock.
The longtime investment guru recommended SRNE stock several weeks ago when it was trading at $8.
Interestingly, while Cramer’s bullish about the company’s prospects due to its 30-minute spit test for the novel coronavirus, he has a hard time understanding why Sorrento’s stock was up 30% a week after Sorrento’s announcement.
“Turns out the market was just stupid because today, on the exact same news … Sorrento rallied 31% to just under $13. The stock market’s supposed to be efficient, but somehow it took Wall Street six days to process this news,” Cramer stated.
He’s kind of right.
Sorrento Drops the Saliva News
On July 29, Sorrento issued a news release announcing it was entering into a licensing agreement with Columbia University for the rights to a rapid, one-step diagnostic test that detects SARS-CoV-2 virus from a saliva sample in 30 minutes.
“Unlike other commercially available diagnostic products, the test developed by Columbia’s team, to be marketed by Sorrento under the COVI-TRACE™ name, holds all of the testing materials in a single tube and requires no specialized laboratory equipment, making it easily deployable for point of care, on-site or potentially at-home testing.”
That was a Wednesday. There were three days of trading between the announcement date and Aug. 4, the day its share price jumped by a third. If you include the weekend, that’s almost six days. So, close enough.
But it is weird, that at a time when the words Covid-19 have been said far more often than the number of U.S. cases, no one in the investment community took notice of something that could be vital to resuming normal activities in this country.
Is SRNE Stock All That and a Bag of Chips?
Cramer was ahead of the curve when it comes to the San Diego-based clinical-stage, antibody-centric, biopharmaceutical company. The question is whether he’s right or not.
If he is, SRNE’s current price of $13.61 is certainly not expensive based on future revenue potential. On the other hand, its stock has almost doubled in two weeks. It’s now valued at 64x sales. That’s a lot for a company that only had $16.7 million in sales and a $90.9 million loss through the first six months of 2020.
Late to the Sorrento party, I’ll lean on my InvestorPlace colleague, Josh Enomoto, who once worked for the company and lives in San Diego, to get a better feel for whether Cramer is barking up the wrong tree.
Josh’s most recent discussion about the company also happens to have occurred on Aug. 4, the same day as Cramer’s comments.
In his commentary, he points out that if the claims by the Columbia University Medical Center team and Sorrento are found to be accurate – a true positive rate of 97% and a true negative rate of 100% – SRNE stock would skyrocket. My words, not his.
However, and this is something that bears repeating from time to time when dealing with development-stage biopharmaceutical companies: Claims aren’t the same thing as proven capabilities.
Not to mention, there are massive drug companies out there who spend billions on research and development to create new drugs. Sure, in recent years, Big Pharma has acquired its way to growth, but the pendulum seems to be swinging back in the direction of organically derived medicine.
“Bear in mind that the leaders in the diagnostic space are Abbott Laboratories (NYSE:ABT) and Roche Holding (OTCMKTS:RHHBY). As I just mentioned, Abbott has fielded many questions about its testing accuracy,” Enomoto wrote.
“It’s hard to believe that Sorrento won’t at least face some setbacks when rigorous testing, including peer review and broadening the test sample size, are incorporated.”
My colleague is trying to point out that Sorrento is pivoting from being an oncology-focused firm to one solving the problems of the here and now. That’s not an easy thing to do at the best of times. But when better-financed companies are stumbling to the finish line, the likelihood of Sorrento running the gauntlet free of setbacks does seem remote.
The Bottom Line
In past articles about Covid-19 related vaccines, treatments, and tests, I’ve recommended investors interested in placing a bet on one or more of the winners, make a safer play, and buy shares of the ETFMG Treatments Testing and Advancements ETF (NYSEARCA:GERM).
Unfortunately, for investors interested in SRNE stock, it’s not one of the 56 holdings owned by the ETF, so you’re out of luck on the safety play.
I bet if you asked Cramer how he feels about buying at almost $14 a share, he’d be a lot less bullish than he was at $8.
Like my colleague, I’m neither a bull nor a bear when it comes to Sorrento, but I do think the climb to $20 will be a lot more difficult than the climb from single digits.
I wouldn’t buy SRNE stock, but that doesn’t mean you shouldn’t.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.