Why Versartis Inc. Shares Briefly Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Versartis (NASDAQ: VSAR  ) , a wholly clinical-stage biopharmaceutical company focused on developing therapies to treat metabolic diseases and endocrine disorders, popped as much as 12% after exiting its post-IPO quiet period and getting coverage initiated on the company by four major research firms. Shares have since given up most of their gains and are now up around 3%.

So what: The quiet period for IPOs is 25 days following their debut, and it's a period marked by a company issuing no earnings forecasts and research firms issuing no coverage. Once that 25 days is up, however, it's game on as you can tell. Starting coverage on Versartis today is Canaccord Genuity with a "buy" rating and a $36 price target; Cowen & Co. with an "outperform" rating; Citigroup with a "buy" rating and $60 price target; and an "overweight" ranking and $79 price target from Morgan Stanley.

Now what: Before you get too excited about these lofty price targets, consider that Citigroup and Morgan Stanley were the joint book-running managers for Versartis' IPO, Cowen & Co. was acting as lead manager, and Canaccord Genuity was its acting co-manager, so it's no wonder these companies are all so optimistic on Versartis. Ultimately, analyst ratings tend to be very short-term drivers of a company's share price and they rarely affect the long-term investment thesis of a company. I would certainly qualify today's coverage initiations as falling into that broad category of extremely short-term news-driven events.

What shareholder will really want to focus on is VRS-317, the company's only development-stage therapy to treat growth hormone deficiency in adults and children. To date, VRS-317 has only made it through a phase 1 study in adult patients and has a phase 1/2 pediatric patient trial currently enrolling, so we're readying for the meat and potatoes of the therapies' efficacy so to speak. There could be a large market for HGH-deficiency meds, so this is what prospective investors will want to focus on instead of the analyst coverage parade.

Versartis shares may have jumped notably today, but they'll likely have a hard time keeping pace with this top stock in 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2916255, ~/Articles/ArticleHandler.aspx, 7/26/2014 1:57:51 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement