SAVA - Cassava Sciences (SAVA) stock: Is it a buy as short-squeeze eases?
2024-01-18 01:02:00 ET
Cassava Sciences (NASDAQ: SAVA) stock price has surged hard in the past few months, stinging short-sellers who benefited as it plunged for most of 2023. The shares have surged by more than 106% from the lowest point in November as hopes that its Alzhemer’s drug candidate will be approved.
Short-sellers in turmoil
Cassava Sciences is one of the most shorted companies in Wall Street. According to SeekingAlpha, the company has a short interest of almost 35%, meaning that many investors expect the stock to crumble in the coming months.
This means that these investors have lost a fortune as the stock surged by more than 106% from its November lows. Still, long-term short-sellers are still in the money as the stock sits about 82% below its all-time high.
Cassava Sciences fate has been similar to that of meme companies that thrived in 2021. Most of them like ContextLogic (Wish), AMC, GameStop, and Blackberry have plunged hard from their peak. SAVA was one of these meme companies.
Cassava Sciences has recently bounced back as investors remain optimistic about its Simuflam drug that is now going through testing. The rally started in October after Cassava Sciences published a report about magnetic resonance imaging (MRI) data.
In a statement, the company said that MRI data showed that Simuflam was not associated with Imaging Abnormalities (ARIA). This was an important move since some experts had warned about it. ARIA is a well-known condition that affects people with Alzheimer’s disease.
Cassava Sciences challenges ahead
Still, the company faces major challenges ahead, which explains why the short interest is high. For one, Cassava Sciences has not yet done a large study, which is necessary for its approval. Instead, the company has often done small open-label tests. Its only CMS test, which you can see here , had unsatisfactory results.
Cassava Sciences is also in a sector that has been challenging to innovate for years. Companies researching Alzheimer’s like Biogen, Eli Lilly, BioVie, Annovis Bio, and Coya Therapeutics have spent billions of dollars in the past decade. Their success rate has been low, which explains why some of these stocks have underperformed.
In addition to its recent results on ARIA, SAVA stock price has jumped because of the ongoing consolidation in the industry. Companies like Johnson & Johnson, Lilly, Bristol Myers Scuibb , and GSK have spent billions in acquisitions. As such, some investors believe that Cassava can also be bought. For now, this is highly unlikely because it is yet to do a large study, which explains why SAVA has dropped by 21% from its highest point in December.
What next for SAVA stock price?
Turning to the daily chart, we see that the Cassava Sciences stock price has done well since October, as I predicted . The shares remain above the 50-day and 200-day moving averages, which I believe is a positive sign. Most recently, the stock formed a golden cross pattern as the two averages made a crossover.
It also remains above the 23.6% Fibonacci Retracement level. Therefore, while SAVA is a high-risk investment, I am leaning towards the bullish side. If this view is correct, the stock will likely rally and retest last December high of $32, which coincides with the 50% retracement point.
The post Cassava Sciences (SAVA) stock: Is it a buy as short-squeeze eases? appeared first on Invezz