In the biotechnology sector, Cassava Sciences (NADSAQ:SAVA) remains one of the top clinical-stage companies that investors are watching. Over the past one year, SAVA stock is down by less than 20% but up nearly 9% for the past six months. That’s not too bad considering the performance of many of its peers. However, today, the stock is up on some rather important news.
What has SAVA stock heading higher? Well, the company announced today that it has completed a distribution of warrants to shareholders. This distribution took place at a 4:10 ratio, meaning investors holding 10 shares received four warrants for their troubles. These warrants are now openly trading on the Nasdaq under the ticker SAVAW.
Let’s dive into this announcement and what it means for shareholders moving forward.
SAVA Stock Climbs on Warrant Distribution
In many cases, early-stage companies can use warrant issuances as a way to raise capital. By issuing warrants and not shares, the company can control its share count and avoid diluting shareholders. Additionally, often times, warrants act as an option on a stock, allowing investors to cash in if shares breach a certain level but paying out nothing if the company fails to reach a given benchmark.
In this case, Cassava’s warrant distribution appears to take the form of a dividend. Thus, it’s a free option for investors who believe the stock can breach $33 per share (the exercise price) by Nov. 15, 2024, when the warrants expire. Rewarding large shareholders with warrants can be an effective way to ensure stability within a company’s investor base. That certainly seems to be playing out today.
As with any small-cap stock in any sector (let alone the biotech space), there’s plenty of risk involved with betting on a company like Cassava. Additionally, it’s important to note that SAVA stock currently trades at around $24 per share. So, shares will need to see a substantial rise for these warrants to pay off.
That said, since they’re trading on the open market, investors can currently cash in their SAVAW warrants for around $3.50 at the time of this writing. That’s not bad — and certainly a dividend investors will cheer, given how patient many have been with the company.
On the date of publication, Chris MacDonald did not hold (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.
