Reddit traders sent NeuroMetrix (NASDAQ:NURO) stock to the moon last month. But since then, shares in the medical device company have sold off considerably from their high of $38.75 per share. As of this writing, NeuroMetrix changes hands around $12 per share, a more than 60% decline.
So, will shares hold steady or continue to fall back? Chances are, the latter will happen. True, the latest news with its Quell fibromyalgia treatment device may look promising.
But it’s still too early to say that this news is something that warrants it trading for more than four times what it traded for as recently as July 19. Quell may be one step closer to reaching its full commercial potential. Yet it’s likely still years away from its ultimate payoff moment.
In the meantime, expect impatient speculators, more interested in fast profits, to continue cashing out. Dilution may be on the menu soon too. The company’s already diluted shareholders via secondary at-the-market offerings. It could decide to do so again, while its split-adjusted stock price remains at levels not seen for years.
Put these factors together, and shares are likely heading back to below $10 per share. This may make for a great opportunity down the road. But at today’s prices, it’s best to remain on the sidelines.
Why NURO Stock Went Parabolic in July
What made NeuroMetrix shares, which for most of 2021 have traded sideways, skyrocket to the moon late last month? Two factors. First, as InvestorPlace’s William White broke it down on July 20, a key piece of news regarding the company’s Quell device put the stock on the radar of retail traders.
That day, it was announced that the U.S. Food and Drug Administration had given its flagship product breakthrough device designation. It paves the way for Quell to be sold explicitly as a fibromyalgia pain management product. It may open the door for Medicare reimbursement for purchases of it, as well.
Second, on the heels of this news, the Reddit trader army went bananas for NURO stock. As InvestorPlace’s Brenden Rearick reported July 21, chatter of it being a short-squeeze target helped to fan the flames. In turn, the stock soared nearly 12x in a matter of days. Yet the frenzy didn’t last long.
Shortly after starting to pull back on profit-taking, traders sold the news after another round of positive trial results for Quell came out on July 26. At $12 per share, it appears to be now holding steady. Or is it? NeuroMetrix may be on its way to materially higher sales over the next year. But that may not mean shares are done selling off in the short term.
Further Declines May be Ahead
NURO stock differs in one key way from other medical device stocks pumped up by Reddit traders. Even after its pop, its valuation doesn’t appear that out of hand. Yes, it’s trailing 12-month sales of $8.2 million, and history of operating losses hardly justify its current $78.3 million market capitalization.
But compare it to similar plays, and valuation looks a lot more reasonable. For example, robotic surgical device maker Asensus Surgical (NYSEAMERICAN:ASXC). Another name priced on future potential, it has a $567 million market capitalization, against just $5.1 million in trailing 12-month sales.
That being said, this factor alone may not prevent the stock from pulling back further. Again, due to one factor that’s happening, and one factor that could happen. First, traders have already started to cash, and could continue to do so while the going’s still good. Second, the company could decide to take advantage, and issue more shares to fatten its war chest.
Between January and June, NeuroMetrix sold more than 1.2 million newly-issued shares (out of 5.63 million shares currently outstanding) through its existing at-the-market offering program. Its current cash position ($8.36 million) may be enough to meet its current needs. But the company could still decide to strike while the iron is hot. That is, raise additional funds while its stock remains at multi-year highs.
Wait for a More Opportune Entry Point
With the FDA’s breakthrough device designation, NeuroMetrix may now have greater potential to market its Quell pain management product. In addition, it sports a much lower valuation than other medical technology plays pumped up by the Reddit set. Yet these positives do not mean it’ll bounce back, or even hold steady, in the months ahead.
Going forward, two factors could push shares lower. First, traders cashing out their fast profits. Second, more dilution, if the company decides to raise more capital from the sale of new stock.
NURO stock is an interesting opportunity for sure. But it may be best to wait for it to head back to single-digit prices before buying.
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.