Last month was a brutal one for the markets, with the S&P 500 falling 9%. It was the worst April for the index in 52 years. Inflation, rising interest rates, and a war in Ukraine are just a few of the largest problems facing global economies right now.
That makes the recent performances of Nkarta (NKTX -4.88%) and Redbox Entertainment (RDBX) all the more impressive. Both of these stocks soared more than 60% during the month. The big question is why, and should investors buy these stocks before they take off again?
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1. Nkarta
For most of the month, shares of biotech company Nkarta weren't doing all that well and were actually declining. But on April 25, not only did the stock more than double in value, but the number of shares traded jumped from just 110,800 in the previous trading day to nearly 110 million.
NKTX 30-Day Average Daily Volume data by YCharts
As is often the case with biotech investments, shares of Nkarta surged on news of positive results from a couple of clinical trials. The company released preliminary phase one results for two of its natural killer cell therapy cancer treatments, NKX101 and NKX019. A focus on early-stage trials is on dosing and safety, and both were well tolerated without any dose-limiting toxicities. Both trials are related to treating different types of blood cancer, which accounts for 10% of all cancers that are diagnosed in the U.S. each year. So the potential could be massive for this company if its treatments prove to be successful; Nkarta currently has a modest market cap of less than $700 million.
CEO Paul J. Hastings was encouraged that both treatments showed "such striking early single-agent activity in heavily pretreated patient populations, with an exceptional safety profile without the side effects associated with CAR T cell therapies."
The results were incredibly encouraging for Nkarta, a company that doesn't generate any revenue or have any approved products thus far. The challenge with investing in any of these types of small biotech stocks is that there is considerable risk; success in early-stage trials doesn't necessarily translate into success later on.
It's still a long road ahead for the company. While the healthcare stock can certainly surge in value if it continues delivering positive news from its clinical trials, investors should remain careful with the stock, as there will likely be significant volatility in the months and years ahead.
2. Redbox Entertainment
Redbox also experienced a sudden surge late last month, but for seemingly mysterious reasons. The lack of any significant (positive) news coupled with Redbox being a struggling entertainment company that is highly unprofitable makes it likely that the stock could simply be following in the footsteps of AMC Entertainment Holdings. The popular meme stock also wasn't in great shape when retail investors piled money into its business last year. Investors could again be rallying around another struggling business in Redbox, which went public through a merger with a special purpose acquisition company in October.
Despite not showing much excitement since going public, Redbox, like Nkarta, saw its 30-day trading volume suddenly take off last month:
RDBX 30-Day Average Daily Volume data by YCharts
The good news is that Redbox is at least generating revenue. But the problem is that its top line has been declining sharply. In 2021, the revenue of $288.5 million was just over half of the $546.2 million that the company brought in a year earlier. And that fraction becomes even smaller when you compare it to 2019 when Redbox generated $858.4 million in sales. The company has evolved from self-serve kiosks and does have a digital business that offers streaming services for customers. However, this too has been on the decline, with sales in 2021 totaling $35.1 million, down 12% year-over-year.
The company's net loss doubled last year to $140.8 million, and it's hard to see a justifiable reason to invest in the stock. The large rally last month suggests this could be another meme stock in the making. Investors should be careful not to jump on this bandwagon -- as with Nkarta, there could be lots of volatility in the future.
