VistaGen Therapeutics (NASDAQ:VTGN) operates in the penny stock sector which can be the wild, wild west of the stock market. For every diamond in the rough, there are just as many failing companies or companies that will never be more than just penny stocks.
Investors have to pay particular caution with penny stocks in 2021. The retail trading sector has become very aware of the potential for these stocks to deliver outsize gains with just a little help. There’s nothing wrong with that, but it does mean that a stock’s price movement can move indifferently to its fundamentals. After all, the axiom in investing is that many times stocks are cheap for a reason.
The biotechnology (biotech) sector has many penny stock candidates. The Covid-19 pandemic highlighted the fundamental problem that many biotech companies have. If they don’t have a drug or a therapeutic on the market, there’s very little for investors to get excited about. If they get a product into clinical trials, there’s no guarantee it will get to market.
In the meantime, these companies generally have to burn through a lot of cash. And that can be hard to raise aside from issuing a share repurchase program that has a dilutive effect on the stock price. For investors, this can be a frustrating cycle at best and a death spiral at worst.
However, VistaGen appears to be an exception. The reason for this is the company’s pipeline.
Leaning Into Conditions That Are On the Front Burner
Investors are forward-thinking. So while Covid-19 remains a public health concern, investors are already eyeing where the next biotech trend will be. And more importantly, what companies have products available to provide relief.
VistaGen Therapeutics is “Looking beyond the standard of care for anxiety, depression and other CNS disorders.” If you’re reading this article, I imagine you, or someone you know suffers from a mild or more severe mental health issue. Mental health is rapidly becoming one of the largest public health concerns of our time.
VistaGen does not have a product on the market today. However, the company has two drug candidates that are in Phase 2 trials. And its lead candidate, PH94B has just finished its Phase 2 trial and will be moving into late-stage Phase 3 trials this year. PH94B is a neuroactive nasal spray that is being tested for efficacy in treating social anxiety disorder, postpartum anxiety, PTSD and other anxiety-related conditions.
An Improving Balance Sheet
The company last reported earnings on February 11, 2021. Like most penny stock companies, VistaGen is not profitable. But it is trending in the right direction. Earnings per share, while still negative were negative 7 cents per share as opposed to the negative 15 cents per share from the year prior.
On February 18, Jefferies initiated coverage VTGN stock with a 12-month price target of $6. That is in line with other analysts and the consensus price target for VistaGen is $5.50 which would be a gain of more than 100% from current levels.
Avoid the Weak Hands
The term “weak hands” has a couple of different meanings. But one common definition is as a term to describe traders and investors who lack conviction in their strategies. As I mentioned earlier, penny stocks often draw the attention of speculative traders for the opportunity to get a quick gain based not on fundamentals, but on the cheap price.
You have to be careful about that with VTGN stock. Since rising to $2.29 to start the year, there has been a lot of volatility with the stock that suggests that a lot of weak hands are looking for a quick profit.
There’s nothing wrong with that, if that’s your jam. However, if you’re looking to buy VistaGen as an investment, you should beware of short-term price movements and look for positive news from the company’s pipeline. That’s what will ultimately decide the direction of VTGN stock.
Of course, there’s a chance that VistaGen will be unsuccessful in bringing its products to market. That’s the risk investors take with early-stage biotech. But at the company’s current price the reward outweighs the risk if you keep your position small and are using that pool of speculative money that isn’t going to ruin your life.
Companies Mentioned in This Article
Compare These Stocks
Add These Stocks to My Watchlist
Analysts Hate These 12 Stocks
When a single Wall Street analyst downgrades one of your stocks, you might think they are just having a bad day or have an incorrect investment thesis. One downgrade typically won't have a significant impact on the price of one of your stocks, but what if analysts repeatedly downgraded a company over the last 30, 60, or 90 days? You would know something is seriously wrong.
Today, we invite you to take a free exclusive look at our up-to-the-minute list of 12 "Most Downgraded" stocks. These are true strong sell stocks. Analysts are abandoning them in droves and issuing rare downgrades and sell ratings. If any of these stocks are lurking around in your portfolio, seriously consider whether or not they still belong in your portfolio.
View the "Analysts Hate These 12 Stocks".