Shares of Cassava Sciences (NASDAQ:SAVA) are erupting higher on the day, with SAVA stock up about 10% at the time of writing. At one point though, shares were up almost 20% in the session.
Part of that exuberance can likely be tied to the rally we’re seeing in short-squeeze stocks on Monday. Stocks saw a nice opening rally to start off the week, particularly in growth stocks. Even more specifically, names like GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC) and Bed Bath & Beyond (NASDAQ:BBBY) really rocketed higher. The continuous flow of mergers and acquisitions (M&A) activity in biotech certainly doesn’t hurt.
Can these explanations really explain what’s going on with SAVA stock today?
For the most part, yes. The company had some bumpy news late last month — more on that in a second — and reported earnings on Wednesday, Aug 3. Largely though, the week beginning with a “risk-on” rally is likely the spark driving shares higher.
The question is, can the momentum be maintained?
It’s Been a Tough Road for SAVA Stock
The company’s controversial Alzheimer’s drug simufilam has certainly had some recent drama surrounding it. On July 27, shares plunged on reports that the U.S. Department of Justice (DOJ) opened a criminal investigation into Cassava Sciences on whether it manipulated results with its simufilam clinical trial results.
Cassava “vehemently denies any and all allegations of wrongdoing,” said Kate Watson Moss, a lawyer for the company. She added that the company “has never been charged with a crime, and for good reason — Cassava Sciences has never engaged in criminal conduct.” Further, she “neither confirmed nor denied the existence of the Justice Department criminal probe,” according to Reuters.
The reports regarding the DOJ sent shares spiraling lower. At one point, shares were down more than 37% on July 27. However, SAVA stock closed lower by “just” 14% that day.
All this aside, the company also reported its second-quarter results last week. Cassava lost 48 cents a share, missing expectations by 6 cents a share. Remember that this is a clinical-stage biotech company, meaning it’s pre-revenue. With almost $200 million in cash and short-term investments, many bulls consider this a formidable cash position, particularly for a company with a market capitalization of roughly $750 million.
Additionally, SAVA stock is still up almost 40% from the lows. However, if the rebound in these stocks is about to end, shares may find a tough time gaining momentum from here.
On the date of publication, Bret Kenwell 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.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
