Sorrento (NASDAQ:SRNE) stock could be making a comeback. After a brutal August, shares have moved higher in recent days. Why? News of the company getting FDA approval to begin trials of its STI-1499 antibody drug. But while this headline has put shares back on the radar of Robinhood traders, should you join the wave?
It depends. On one hand, STI-1499, also known as COVI-GUARD, could wind up being a viable treatment for the novel coronavirus. Granted, the market for a coronavirus treatment probably won’t be as massive as the one for a vaccine. Yet, it may still be enough to further move the needle for Sorrento shares.
On the other hand, today’s stock price may already reflect much of this potential. With shares changing hands around $9 per share, the stock trades for more than three times of its pre-pandemic prices. Yet, SRNE stock today trades far below its highs set last month ($19.39 per share)
The question now is, will shares retrace their highs? It’s possible in the near-term. How? More positive news could send shares parabolic, as bears betting against this highly-shorted stock scramble to exit their positions.
So, are shares a buy? Yes, as a short-term trade for investors with a high risk appetite. Just don’t go hog wild, or expect this to be something to hold long-term.
SRNE Stock and Its COVID-19 Pipeline
Beyond press releases and headlines, what are the odds Sorrento’s Covid-19 antibody treatment turns into a marketable product? Granted, the company isn’t exactly the front-runner in the antibody horse race. As George Budwell noted at The Motley Fool, treatments from Eli Lilly (NYSE:LLY) and Regeneron (NASDAQ:REGN) are much further down the pipeline.
Yet, similar to the situation with coronavirus vaccine stocks, a lack of first mover advantage doesn’t necessarily mean last mover disadvantage. Some antibody treatments will see a greater level of dosage sales/success. However, the high demand for treatments may mean “also-rans” also get a piece of the pie.
If Sorrento gets through this trial, “designed for rapid adapted expansion,” and subsequent trials, it may be able to apply for Emergency Use Authorization, or EUA, by year’s end.
But, that’s not all! The company has other COVID-19 products in its pipeline. These include diagnostic test COVI-TRACE, antibody test COVI-TRACK and antibody cocktail COVI-SHIELD.
Positive news regarding any of Sorrento’s Covid-19 programs could help move shares back to past highs. And perhaps, even higher. Yet, despite the plethora of potential fully in motion, lingering red flags remain in play as well.
Short-Sellers Make Valid Points, But They Could Get Squeezed Again
With multiple Covid-19 catalysts, there’s plenty to make a bull case for SRNE stock. But, on the flip side, there are also plenty of red flags to make a bear case. InvestorPlace’s Vince Martin detailed many of these in his Sept. 2 article on the stock. As Martin put it, many questions have been left unanswered.
These unanswered questions give credence to short-seller Hindenburg Research’s scathing report from back in May. Accusing Sorrento of hyping its prospects in order to raise capital via dilutive stock sales, Hindenburg didn’t pull any punches calling out the company.
Yet, while the bears make valid points, going short SRNE stock today may not be the best move. Why? The risk of a short-squeeze. About 28.75% of the stock’s outstanding float has been sold short.
If more positive news hits the wires, shares could continue to rally, as the skeptics cut their losses and exit their positions. Simply put, it’s too risky to join the bears in this crowded trade.
Does that mean you should buy? Possibly, but only as a short-term play, not something to buy-and-hold a year out. How so? As the pandemic continues, and demand for a treatments remains high, all it’ll take to put points into shares is another round of potentially game-changing news. This could send shares parabolic again, as speculators rush back into the stock, and shorts scramble to close out their positions.
But, given the company isn’t exactly a front-runner with its tests and treatments, all bets are off whether it can hold steady, much less move higher, over the next year.
Sorrento Could Head Higher, But Don’t Bet The Ranch
The jury’s still out on this company’s Covid-19 prospects. On one hand, recent news could be the start of something big. If STI-1499/COVI-GUARD becomes a marketable product, expect shares to trade for many times where they trade today.
On the other hand, given the many concerns raised by the bears, it’s easy to see how the company could fall short, sending shares tumbling back to pre-outbreak prices.
So, what’s the call here? If you have a high risk tolerance, and are looking for a short-term pandemic play, SRNE stock today may be worth the risk. Just don’t bet the ranch.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.