Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades/downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Raptor Pharmaceuticals (NASDAQ: RPTP ) sank as low as 5.5% today after Oppenheimer downgraded the drug developer from "outperform" to "perform."
So what: Along with the downgrade, analyst Boris Peaker removed his price target of $11 per share, which already represented about 20% worth of downside to yesterday's close. While Oppenheimer thinks that Raptor will report strong third-quarter results, Peaker believes that the stock is already pricing in an 80%-plus adoption rate in the U.S. and EU for its nephropathic cystinosis drug Procysbi, leaving investors with almost no margin of safety.
Now what: Conservative Fools would do well to keep their distance given the many risks that remain.
"While we do not see any headwinds to the drug in the U.S., we believe that EU reimbursement may be more challenging, and at current valuation we see downside to the stock if EU pricing is significantly weaker than in the U.S.," wrote Peaker in a note to clients. "We believe that the key upside for the stock is success in Huntington's Disease and/or NASH, both of which we view as very risky at this time."
When you couple that uncertainty with the stock's red-hot stock price -- still up more than 200% from its 52-week lows -- Raptor's risk/reward trade-off really does look unappetizing.
More compelling health care stocks
The best way to play the biotech space is to find companies that shun the status quo and instead discover revolutionary, groundbreaking technologies. In the Motley Fool's brand-new FREE report "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that big pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.