Synairgen (LSE:SNG) early investors have made a fortune today after the Covid-19 testing firm reported breakthrough trial results.
The AIM-listed biotech reported positive results from an early trial of its SNG001 drug.
Synairgen said its respiratory coronavirus treatment produced a 79% lower risk of patients developing severe disease compared to those given a placebo.
Patients who received the inhaled interferon beta drug were “more than twice as likely to recover over the course of the treatment”, the UK company said.
Shares soared over 5oo% in the early hours of trading on Monday, before settling closer to 450% towards the end of the day.
But even with this huge jump, I think Synairgen could go higher.
Buy Synairgen now?
Covid-19 testing firms have been in a pharma arms race since the novel coronavirus first hit our shores.
Those with the best prospects have been propelled to epic new heights.
And there are investors on both sides of the Atlantic keen to profit from buying the winners from Covid-19 testing. So I think there are a multitude of buyers who will support the Synairgen share price at current levels and higher.
This has been backed up by City analysts. Broker finnCap tripled its price target from 120p to 360p on the back of the breakthrough news. That target is 110% higher than the Synairgen share price now.
And all the positive press from the likes of Sky News, BBC, and even CNBC in the US is good for the Synairgen share price.
I will put forward a few reasons not to buy Synairgen, for the sake of balance.
This could be a case of ‘buy the rumour, sell the news’. Small, unprofitable, as-yet-unproven companies tend to attract speculators happy to take on massive risk. Their rewards could be spectacular. But if Synairgen can’t bring a product to market quickly, the share price could deflate just as fast as it soared.
I’m also not convinced Synairgen is a share I’d buy and hold for 20 years. This is AIM, after all. Financial reporting requirements are less stringent than on the main market. It is definitely more of a punt than sticking to quality, high-value FTSE 100 shares.
Less than a year ago Synairgen was trading at 6p. Its fair value could be as low as 40p. This is an equation based on earnings per share, annual earnings growth, and return on capital.
There is still a big ‘if’ attached to Synairgen. If hope and hype wanes, the share price will likely trend back towards its fair value.
Buy or sell Synairgen?
When I last covered Synairgen back in April, its market cap was just £75 million — right at the bottom of the range I’d be happy investing in.
With this news of a potential Covid-19 trial breakthrough, the company’s market cap has hit £260 million.
And volume has soared as the market digests the news. 22 million shares had changed hands before noon on Monday 20 July.
So with more liquidity available (more people buying and selling) there is a better chance for investors buying now to get in and out of positions at the price they want.
It’s okay to let others take on all the early risk by investing in unproven companies. I’d still say Synairgen is worth a short-term punt, but don’t put your life savings on the line.
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Tom Rodgers has no position in the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.