What happened

Shares of Aldeyra Therapeutics (ALDX -0.52%) soared 18.1% higher on Friday. The big jump came after BTIG analyst Julian Harrison initiated coverage on the stock with a buy recommendation and a price target of $29 -- more than four times Aldeyra's closing price on Thursday.

So what

Analysts' recommendations and price targets can sometimes be on track but at other times can be dead wrong. However, it's usually a smart move to consider the underlying reasons behind their optimism or pessimism about a given stock.

Businessman sitting in front of a laptop with one thumb up.

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In this case, Harrison wrote to investors that Aldeyra could have a "first-mover advantage" because of its research into using immuno-modulators that target reactive aldehyde species (RASP) in treating various inflammatory disorders. RASP are reactive molecules that can bind to molecules and cause inflammation.

Harrison thinks that Aldeyra could be on the verge of decades of development in RASP. He views the stock as an "attractive and de-risked" opportunity for investors to buy.

The BTIG analyst is correct that Aldeyra has demonstrated significant potential with its two lead pipeline candidates, reproxalap and ADX-2191. The stock isn't as risky as some clinical-stage biotech stocks with both candidates in late-stage clinical studies. However, some level of risk remains until these studies are completed and Aldeyra wins regulatory approvals. 

Now what

Aldeyra expects to provide updates on its ADX-612 program in treating COVID-19 and on enrollment in its late-stage study evaluating ADX-2191 in preventing rare retinal disease proliferative vitreoretinopathy by year's end. The company also anticipates reporting results from its late-stage study of reproxalap in allergic conjunctivitis in the first half of next year. The biggest milestone on the way, though, will come later next year with Aldeyra's expected filing for FDA approval of the drug in treating dry eye disease.