As a biotechnology firm with meme-ish qualities, it’s not necessarily the biggest surprise in the world that Atossa Therapeutics (NASDAQ:ATOS) has enjoyed a remarkable ride so far in 2021. On a year-to-date basis, ATOS stock has soared 340% at time of writing.
Much of this enthusiasm is driven by social media, identifying the biotech outfit as a potential short-squeeze opportunity. Though ATOS stock is up big as I mentioned, since hitting its closing peak of $8.62 on June 25, shares are down almost 52%. But according to Atossa advocates, this fallout could be an excellent buying opportunity.
On surface level, I can appreciate the logic. According to data from Yahoo Finance, the short percentage of float is 17%. Generally, day traders regard this metric at 10% as an indicator of a heavily bearish equity unit. Therefore, the thinking is that by piling into ATOS stock, the bulls can force those short Atossa to cover their “negative” position before rising prices stick them with possibly unlimited liability.
It’s a concept that has worked before with genuine meme stocks. But the challenge for ATOS stock is that its short ratio or days to cover is only 0.64. Based on average trading volume, the bears can cover their positions within one day, thereby potentially limiting the damage bulls can inflict.
Personally, if I’m going to enter a short trade, I’d like to see both the short percent and short ratio at appreciably high levels. Otherwise, I could be risking buying into an equity unit that underneath the hype is a dud.
But before you completely write off Atossa, you should note that the company does offer fundamentally compelling narratives.
Oncology and Pandemic Solutions Bolster ATOS Stock
Prior to the novel coronavirus pandemic, Atossa specialized in breast cancer treatments. Specifically, it has been hard at work “developing an oral formulation of endoxifen to reduce mammographic breast density.” According to management, endoxifen essentially provides additional care options during the window of opportunity between diagnosis and surgery.
Ultimately, Atossa aims to preventing breast cancer from developing in the first place — and clinical data has demonstrated that endoxifen reduces such cancer risks. The company’s website claims that in Phase 1 and 2 studies in Australia, endoxifen generated encouraging results.
Certainly, if Atossa could push this therapeutic through the clinical process toward commercialization, it could be a gamechanger for not only ATOS stock but for oncology in general. Information from BreastCancer.org states that “About 1 in 8 U.S. women (about 13%) will develop invasive breast cancer over the course of her lifetime.”
Learning More About ATOS
Getting a preventative and mitigatory solution will improve both health outcomes and lessen the economic burden of cancer — a concept that should get more attention given the exploding costs of healthcare.
In addition, ATOS stock has enjoyed bullish sentiment on the implications of Covid-19, especially the delta variant. With new infections rising to worrying levels, the global community may need a different kind of assistance: treatment for those that already got the SARS-CoV-2 virus.
Using a combination of drugs including the Food and Drug Administration approved Heparin and N-acetylcysteine, Atossa’s Covid-19 therapeutic, called AT-H201, could potentially be “four times more potent” than remdesivir, a treatment developed by Gilead Sciences (NASDAQ:GILD). Interestingly enough, AT-H201 could also be 20X more potent than hydroxychloroquine, a treatment which former President Trump often touted.
Cynically, with vaccine hesitancy still a major roadblock for addressing the pandemic, ATOS stock could enjoy serious upside if the crisis worsens.
Not Quite an Easy Buy
Despite some promising aspects to ATOS stock, prospective buyers should really think twice before taking the plunge. First, the underlying company’s breast cancer treatment is probably going to be a long and arduous endeavor. Nothing related to oncology is a straightforward journey.
Further, the pivot to Covid-19 is not something many investors necessarily want to see. If management genuinely believes in its cancer treatment directive, it should in my opinion focus on that, not on chasing Covid-related solutions, of which Atossa is already lagging behind major competitors anyways.
Second, about that Covid pivot again, the main risk in directing resources to AT-H201 is that sharply rising coronavirus cases will wake folks up. As you may know, popular Fox News personalities have begun their own pivot, this time on the narrative. Instead of playing coy with vaccines through ideological dog whistles, some are now urging these long-term solutions — or at least urging their viewers to consider it.
Bottom Line On ATOS Stock
Finally, I like to let the market be the arbiter of demand. With ATOS stock, I have big concerns, particularly because it charted a bearish head-and-shoulders pattern since late May of this year. Even if you do like ATOS, you may want to wait for a better price.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.