What happened
Shares of small-cap biotech Sorrento Therapeutics (SRNE.Q -16.67%) were up by a noteworthy 13.3% on heavy trading volume as of 11:24 a.m. ET Tuesday. What's particularly interesting about this double-digit percentage move is that the company hasn't announced any significant material events in about a month.
So what's going on? Sorrento's shares were some of the hardest hit in its industry during the first half of 2022. The biotech stock shed an eye-catching 56% of its value amid that downturn. In that context, Tuesday's uptick appears to be the result of bargain hunters positioning for a possible rally among small-cap biotechs in the second half of the year.
So what
Why are some investors growing more optimistic that the worst might be over for small-cap biotech stocks? One possibility is that their valuations have gotten so low that big pharma players and blue-chip biotechs might start to scoop up companies with promising pipelines at discounted prices. Sorrento, with its broad pipeline of immunotherapies, cancer drugs, and COVID-related product candidates, might be an attractive takeover target.
Now what
Is Sorrento's stock a buy on this sudden trend reversal? Fundamentally speaking, it does appear to be undervalued -- even after Tuesday morning's uptick. Keeping with this theme, the biotech's late-stage lung cancer drug candidate, abivertinib, arguably supports its current valuation. And when you add in the net present value of its other pipeline candidates, Sorrento's stock starts to look like an absolute steal at current levels.
