Cassava Sciences (NASDAQ:SAVA) stock looked as though it was dead in the water, having entered September losing more than half its value in just a week’s trading.
Then, as if it flipped a switch, SAVA stock rebounded in the second half of the month, regaining more than 50% of its value.
As I write this, it’s trading above $60 and looks ready to go on a big run in October like it did in May. This stock is so unpredictable; it would not surprise me in the slightest if it were to retest $100 before the end of the year.
I’m Conflicted About SAVA Stock
There is no question that I’m stuck on the fence when it comes to Cassava Sciences.
On the one hand, the company is looking to be a part of the solution for treating Alzheimer’s patients. I’m 100% behind any business that can make a difference in this debilitating disease.
On the other hand, it’s never a good look when a company with zero revenues is facing allegations of fraud, albeit allegations leveled by short sellers with a vested interest in seeing the company fail in its efforts to commercialize simufilam.
In my Aug. 31 article about Cassava, I cautioned investors to wait for the allegations to be disproven by the company. But, unfortunately, while it vehemently denied any wrongdoing, the ambulance chasers have kept coming.
On Sept. 29, a press release appeared in the news from Berger Montague, a Philadelphia law firm specializing in class action litigation. It said:
According to recently filed lawsuits, Cassava and members of senior management misrepresented the quality and integrity of the scientific data supporting the Company’s claims regarding the efficacy of its Alzheimer’s drug, simufilam.
The law firm doesn’t feel the company’s rebuttals to date are substantial enough to stop it from proceeding with litigation.
As I said, I’m conflicted about buying SAVA stock while doubts still linger.
He Said, She Said
I’ll give Cassava Sciences’ CEO Remi Barbier credit for responding in a very professional manner to every claim made by short sellers about the validity of its science.
“As a science company, we champion facts that can be evaluated and verified,” Barbier stated on Aug. 25. “This helps people make informed choices. It is important for stakeholders to separate fact from fiction, which is why we wish to address allegations head-on.”
That’s PR 101.
However, for this article, I’m at a disadvantage because I’m not a scientist. It would be fair to say I wasn’t even an outstanding high school science student.
So, I couldn’t tell you whether any of the facts posited by Barbier in response to the short sellers so-called fictions holds any water. I really couldn’t.
As I stated earlier, I do know that it couldn’t hurt to stay on the sidelines until the allegations are disproven.
That’s because if the analyst estimates of the market size for Simufilam are accurate – Jones Trading analyst Soumit Roy puts peak sales at $20 billion annually – Cassava could have a future market capitalization of $90 billion, or 30x its current valuation.
I’m not trying to rain on anyone’s parade here. Investors do seem to be signaling that the allegations are much ado about nothing.
Perhaps they are.
The Bottom Line
At the end of June, Cassava had 40 million shares outstanding. So, let’s assume simufilam gets FDA approval by the end of 2022, hits the market in 2023, and hits peak sales by 2030.
In nine years, I will assume that its share count will increase three-fold to 120 million. Based on a $90 billion market cap, shares would be $750 at the end of 2030. Let’s assume that SAVA stock doubles by the end of 2021 to $125. Shortly after that, the allegations are entirely disproven, and the shares double again by June 30, 2022, to $250.
If you buy at $250 next year and hold through 2030, you’d be looking at a compound annual growth rate of 13.8%. That’s a good, if not a great, return.
For those convinced Cassava is the real deal, I suggest buying a half position today and the other half whenever the proof is delivered to kick the short sellers to the curb.
It protects your downside while getting on the dance floor.
I wouldn’t buy SAVA stock, but I can see why so many investors are drawn to it.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.