Is this penny stock a buy for me after its 14% jump today?

This AIM-listed stock is up 14% today, as it gathers pace from positive recent updates. But does Manika Premsingh have enough reason to buy the stock?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

AIM-listed Sareum Holdings (LSE: SAR) is a big gainer in today’s trading, with a 14% increase. At 4.3p, it is now near all-time highs. As impressive as the rise is, this is not a one-off increase for the pharmaceuticals penny stock. It has jumped a whole 760% in the past year!

This indicates that investors have been bullish on the stock for a while now. A look at its share price chart reveals initial indications of interest in late March last year. This was soon after it talked of exploring potential Covid-19 treatments. With some hiccups along the way, interest in the stock has risen significantly since. 

Why are investors bullish about Sareum Holdings?

Today’s increase should be seen in this ongoing context, in my view. Three recent updates have got investors all fired up. First, it disclosed a fund raise of £900,000 from a high net worth individual. Among other things, this will be channeled towards further exploration of Covid-19 treatments. It also received a government grant for the same in December last year for six months. 

Then, Sareum revealed encouraging initial results from the use of its drugs. Finally, it also said that if the studies prove successful, it will apply for government funding for “potentially ground-breaking Covid-19 treatments”.

The company, which otherwise focuses on treatments for cancer and autoimmune diseases, could be on the verge of a breakthrough if its treatment is found to be successful in curing Covid-19. But that remains to be seen. So far, the Cambridge-based company is not revenue-making. Also, I do not know if and when the firm’s potential will translate into real profits. 

Managing the risks

It follows that, despite all its potential, Sareum is a risky investment. In such cases, I set aside no more than 1% of my portfolio. So, even if the share price falls to nothing, it would not be a panic-inducing loss to me.

In fact, if I am really interested in buying Covid-19-related shares, I would consider buying shares of big pharmaceutical companies.

Alternative investments in FTSE 100 stocks

One is the FTSE 100 giant AstraZeneca, whose vaccine developed in collaboration with the University of Oxford needs no introduction. The other is fellow FTSE 100 company Hikma Pharmaceuticals, which produces the Covid-19 treatment drug Remedesivir for US-based Gilead Sciences

Neither stock promises the meteoric growth my capital could see if I bought Sareum Holdings, but they do not hold the same risks either. They are large, stable companies that are profitable and have growing revenues. Their share prices have also come down from last year’s highs, as investors started buying up coronavirus impacted stocks last November. So I reckon it is only a matter of time before they go back up to those highs. 

In sum

I think both are good long-term buys. Sareum could prove to be one too, but right now the penny stock looks too much like a speculative investment to me. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of AstraZeneca. The Motley Fool UK has recommended Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

British bank notes and coins
Investing Articles

Should I buy M&G shares for the 9.8% dividend yield?

With the M&G dividend yield close to double digits, this existing shareholder explains why he'd happily buy more of the…

Read more »

British Isles on nautical map
Investing Articles

This cheap UK stock could rise 30%, the City says

Analysts covering Serco Group shares reckon they could rise by over a quarter. But is this UK stock a good…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

Here’s how I’d aim for a million by investing £45 a day

Christopher Ruane thinks putting £45 a day into blue-chip shares could help him aim for a million. Here are some…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

I’d buy FTSE 100 shares in December before the next stock market rally!

Christopher Ruane explains why he would happily snap up cheap FTSE 100 shares between now and the end of the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

6% yield and 8% annual revenue growth! A passive income opportunity

Why not have the best of both worlds? Our writer explores a passive income opportunity with a 6% yield, bolstered…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’ve been loading up on this FTSE 250 share in November!

Christopher Ruane explains why he's been adding even more shares in this well-known FTSE 250 name to his portfolio this…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

Down 30%, these cheap shares are on sale!

Cheap shares don’t mean anything to our analyst unless there’s real value in what he’s buying. Let’s see his Foolish…

Read more »

Photo of a man going through financial problems
Investing Articles

I can’t believe how far these FTSE 100 shares have fallen!

While the FTSE 100 is up 0.7% over six months, these five Footsie flops have collapsed 26% to 40%. But…

Read more »