Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Athersys Stock Is Soaring Today

By Maxx Chatsko - Jun 25, 2020 at 2:41PM

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

The stem cell stock jumped after a major Wall Street firm initiated coverage, but there's a catch.

What happened

Shares of Athersys (ATHX -0.90%) rose over 29% today after Bank of America (BofA) Securities initiated coverage of the stem cell specialist with a buy rating and a $5 price target.

Considering the stock remains under $3 per share even after today's jump, that implies significant upside if the bullishness of BofA Securities proves correct. However, individual investors can't overlook one big conflict of interest. 

As of 1:03 p.m. EDT, the small-cap stock had settled to a 27.7% gain.

A swarm of white paper airplanes being led higher by a red paper airplane.

Image source: Getty Images.

So what

On April 20, Athersys announced a public offering of common stock. The business intended to sell up to about 25.5 million shares of common stock at $2.25 apiece. 

Stock offerings are relatively straightforward: A company issues shares at a predetermined price, investment banks (called "underwriters") agree to purchase the shares at that price, and then the underwriters work to sell the shares to institutional investors and the public. If the underwriters sell the shares for a higher price than purchased during the stock offering, then they collect the difference as profit. 

Well, BofA Securities was the lead underwriter, called "book-running manager," for the April offering. It agreed to purchase 55% of the total maximum offering at $2.25 per share. Today, a little over a month later, it initiated coverage and announced a price target of $5 per share.

Now what

Considering Athersys has failed to commercialize its MultiStem product candidate in the last decade-plus of development and the possible conflict of interest for BofA Securities, the timing of initiating coverage at $5 per share is something individual investors might want to take note of. Put another way, the stem cell stock's trajectory will be determined by outcomes from clinical trials, not what Wall Street analysts project in research notes to clients.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Athersys, Inc. Stock Quote
Athersys, Inc.
$0.25 (-0.90%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.