In the past month, Sorrento Therapeutics (NASDAQ:SRNE) stock has enjoyed only four positive days of trading. It recently rallied from its initial dip, but has again declined. In one month, SRNE declined a whopping 39%. In essence, SRNE stock is a volatile option.
The obvious question is why. One answer is that SRNE is declining from an undeserved peak. A quick look at the chart suggests that SRNE stock was a beneficiary of the “Reddit rally” in late January.
I’m on record as saying that most of that rally was unsustainable, which would mean that the pullback here might make some sense.
That explanation doesn’t quite hold up, however. So another cause might be news. Surely, given that SRNE stock has lost almost half its value, the market is reacting to the fundamentals, right?
But, again, not really. The news coming from Sorrento over the past four weeks, and indeed so far in 2021, looks reasonably bullish, rather than bearish.
As a result, I believe this pullback gives investors another opportunity at Sorrento. It bears noting: this is a high-risk opportunity. Most biotechs are. But, particularly with SRNE back in the single-digits, the rewards could be high as well.
Is SRNE Stock a Reddit Stock?
On Jan. 27, near the height of the WallStreetBets trading frenzy, SRNE stock rose over 45%. Volume of 110 million shares was more than six times the daily average over the previous month.
To be sure, Reddit might have played a role. But so did Sorrento.
The evening before, Sorrento released preliminary results of its Phase 1b study of COVI-MSC. COVI-MSC is Sorrento’s stem cell-based treatment for severe cases of Covid-19-induced respiratory illnesses.
And, at least in the early going, COVI-MSC works. The first three patients treated left the hospital within a week. One had been on “significant oxygen support” and in the hospital for three weeks prior. In an update at the end of the month, Sorrento said a fourth patient (of only four treated) also responded positively and was able to go home.
So while a number of Reddit stocks were soaring based on no news, SRNE stock at least had a legitimate catalyst.
Now, it’s possible that traders played a role. Sorrento stock has high short interest (its chief executive officer has even warned those short sellers), as did a number of the WSB targets. Volume did see a huge spike.
Still, there was a fundamental driver underpinning the move. A legitimate treatment for serious Covid-19 cases would be a game-changer.
The data is still early; we can’t yet draw definitive conclusions as to its broader effectiveness. But the Phase 1b preliminary data is unquestionably positive. It was enough to send SRNE higher not only that day, but into mid-February as well.
So this isn’t a case where SRNE should pull back after a trader-driven rally. There was good news in January, and the launch of a Phase 1 trial of Sorrento’s COVIDROPS for mild Covid-19 cases adds more good news here in March.
Looking Forward
To be fair, it’s not as if SRNE has plunged to new lows. In fact, the stock still is up about 43% so far this year. It’s possible that the pullback is coming after a rally that simply went too far.
I don’t think that’s it, however. We’re seeing a number of widely owned small-capitalization stocks pulling back at the moment, and some of those pullbacks make sense. Valuations went too far, investors got too optimistic, and corrections were needed.
From here, Sorrento doesn’t fit that pattern. Yes, the stock was threatening new highs a few weeks ago. But — again — there were reasons why. Sorrento is making progress on its multi-pronged Covid-19 strategy, and as an analyst recently noted, there’s value in the rest of the pipeline as well.
Put simply, parts of this market got overheated. I don’t believe Sorrento stock did.
All that said, at the end of the day, it doesn’t really matter all that much where SRNE stock traded last month or last year. We’re investors. We look forward.
Looking forward, the case here still looks solid. Sorrento has potential with multiple Covid-19 treatments, as well as a possible vaccine that could serve a market that’s going to be around for a very long time. The pipeline in immunotherapy and pain management is significant, and valuable as well.
And with the market capitalization under $3 billion, valuation is reasonable. Sorrento isn’t going to succeed on every front. But it doesn’t have to in order for SRNE stock to rise from here.
That’s what really matters. Of course, the cheaper price helps.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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