It was an unusual day for Sagimet Biosciences (NASDAQ:SGMT), but don’t get too excited until you’ve thoroughly investigated the company’s recent clinical announcement. I am neutral on SGMT stock just because it’s too hot to handle right now, but speculative traders might be interested in it.
Sagimet Biosciences is a clinical-stage biopharmaceutical company. Financially speaking, Sagimet Biosciences has negative free cash flow, but that’s not unusual for small-cap biotech businesses.
It can be thrilling to buy biotechnology stocks, but there are risks and pitfalls involved. So, while we can all applaud Sagimet Biosciences’ clinical research progress, stock traders should exercise due caution with SGMT stock.
Sagimet Biosciences: Encouraging Results and Probably a Short Squeeze
SGMT stock soared 170.8% today, and I suspect that there’s more involved here than just a positive news report. If there’s a massive short squeeze in progress, then serious investors need to be careful.
Just to recap, Sagimet Biosciences develops novel fatty acid synthase (FASN) inhibitors. These inhibitors target dysfunctional metabolic pathways in diseases resulting from the overproduction of palmitate, a fatty acid.
Like some other small-cap biotechnology companies, Sagimet Biosciences has one main drug candidate. Sagimet Biosciences’ main product is called denifanstat, and it’s an orally administered, once-daily pill that serves as a selective FASN inhibitor. The company recently completed a Phase 2b clinical trial of denifanstat in selected patients.
The top-line results for this clinical trial were just released this morning. There’s good news to report, as denifanstat “achieved statistically significant results on primary and multiple secondary endpoints.”
It was a 52-week trial, so the suspense had been building up for a long time. Yet, the move in SGMT stock was so explosive that it dramatically altered the risk-to-reward balance for new investors. Most likely, the short sellers got squeezed out of their positions, and I suspect that the rally in Sagimet Biosciences stock wasn’t just based on the company’s research results.
Is SGMT Stock a Buy, According to Analysts?
On TipRanks, SGMT comes in as a Strong Buy based on two Buy ratings assigned by analysts in the past three months. The average Sagimet Biosciences stock price target is $31, implying % upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell SGMT stock, the most profitable analyst covering the stock (on a one-year timeframe) is Jonathan Wolleben of JMP Securities, with an average return of 46.9% per rating and a 50% success rate. Click on the image below to learn more.
Conclusion: Should You Consider SGMT Stock?
Sagimet Biosciences should be congratulated for the company’s favorable research results. This is a win-win for the patients and for anyone fortunate enough to already have been invested in Sagimet Biosciences.
Yet, if there was a massive short squeeze involved, the short sellers are probably already squeezed out of their positions by now. Going forward, there’s a severe risk of a pullback as Sagimet Biosciences’ investors might take profits at any given moment. Consequently, I am not considering buying SGMT stock now.
