Trending slightly up once again, should you dive into former Reddit favorite Atossa Therapeutics (NASDAQ:ATOS) stock? Not so fast. Sure, it may still have high short-interest (18.7% of float as of Aug 12). The biotech company may still have not just a timely Covid-19 catalyst, but another possible big winner in its candidate pipeline as well.
Yet neither factor does much to justify entering a position at today’s prices (around $3.62 per share). Why? As I discussed late last month, valuation remains a top reason to stay away. Before it became hyped up online by traders, shares were likely reasonably priced at around $1 per share. At $3.50 to $4 per share? Not so much.
What about the short-squeeze angle? Yes, short interest may still be elevated. But based on tracking of chatter on Reddit’s r/WallStreetBets subreddit, the meme stock community isn’t talking about Atossa anymore. In fact, the last mention of it in a thread was weeks ago, on Aug 11.
Without interest on the long-side (whether driven by hype, hope, or substance), it’s going to be difficult for this former squeeze play to get squeezed once again. Ahead of factors that could put downward pressure on it, your best bet is to sell if you own, stay away if you hold no position now.
ATOS Stock: Little Reason to Buy at Today’s Prices
Take a look at Atossa Therapeutics’ development pipeline, and it’s easy to see why some investors remain excited about this clinical-stage biotech play. Not only has its Endoxifen candidate, a treatment for breast cancer, made it to Phase 2 trial. The company has not one, but two treatments in the works to tackle Covid-19. Those are nasal spray AT-301, which minimizes virus symptoms, and AT-H2021, which helps improve lung function in long-haul Covid-19 patients.
Its pipeline may be promising. The caveat? It’s not for certain when, or if, commercialization happens. For either or all of its candidates. As InvestorPlace’s Stavros Georgiadis pointed out Aug 17, with zero revenue coming in now, or in the foreseeable future, it’s tough to give ATOS stock an accurate valuation.
Mr. Market may have valued it correctly at the start of 2021, before meme stocks became a trend on Wall Street. Before all the hype, shares traded for slightly under $1 per share. This valuation may have accurately reflected its uncertain chances of bringing any or all of its treatments to market.
But $3-$4 per share? That may be too high a price to pay. Especially as with dilution so far this year, the pie’s been cut into many more slices. Per its cash flow statements, in the March and June quarters of this year, it raised about $112.6 million in cash from new share issuance. Worse yet, based on a development that broke last month, the company could have further dilutive equity raises planned.
Expect Another Pullback Rather Than a Squeeze
With the aforementioned elevated short-interest, some may believe there’s still potential for a squeeze. Think otherwise. The meme stock community has had their fun with ATOS stock twice this year. Yet with little to no chatter about it now, don’t expect a third frenzy for the stock popping up anytime soon.
Instead of getting squeezed back “to the moon,” expect it to experience more declines. Perhaps due to those meme traders still holding the bag deciding to finally give up and cash out. Or, perhaps due to another major event that could put downward pressure on shares.
As our Brenden Rearick reported July 30, the company has announced a special shareholder meeting that will put up for vote something that could pave the way for future dilution. Specifically, Atossa is asking its shareholders to approve an amendment to its articles of incorporation that will allow it to increase its total maximum share count by 100 million.
Sure, if this gets approved on Sept. 7, that doesn’t mean the company will immediately initiate an at-the-market offering of 100 million additional shares. Subsequent offerings may not happen until later. However, this development, along with the loss of its meme stock status may be enough to send it on a continued slide back to its pre-hype price levels.
Stay Away from Atossa Ahead of Further Declines
Investors may still be pricing this as if its payoff is imminent. But just like when I wrote about it last month, approval/commercialization of its pipeline remains far away. The meme stock community has by-and-large moved on. This makes it questionable why some may be still holding onto it, ahead of a squeeze that doesn’t appear to be likely.
So, overvalued, with low squeeze odds, what’s the best move with ATOS stock? Sell or avoid, before dilution and other factors push it back down to its pre-hype price levels of around $1 per share.
On the date of publication, Thomas Niel 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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.