Biotech company Axsome Therapeutics (AXSM -0.07%) has been one of the hottest stocks this year, rising 36% in value. That's particularly impressive given that the stock market is down and the S&P 500 has declined by 20% so far in 2022 as of this writing. Bolstered by the Food and Drug Administration's decision last month to approve Auvelity as a treatment for major depressive disorder, the company has given investors plenty to be bullish about.
But five years ago, Axsome may have looked like just another risky biotech stock. Here's a look at how much you could have made on the stock if you had made a leap of faith back then and invested $10,000 in the business.
The stock has been better than a 10-bagger
In September 2017, you could have bought shares of Axsome for less than $5 per share. Even if you paid a little bit more than that -- $5 per share precisely -- your investment would still be worth about 10 times that amount today. In just five years, shares of Axsome have skyrocketed by 824% to around $50 a share as of Sept. 22. A $10,000 investment back then would be worth around $82,000 today.
That profit may be bittersweet, however, for investors who held onto the stock for that long, as Axsome soared to over $100 per share late in 2019 after the company released news that AXS-05 (the drug now called Auvelity) had reached its primary endpoint in a phase 3 trial to treat major depressive disorder. Euphoria took over after that and sent shares of the healthcare company to the moon, as can sometimes happen with high-risk, high-reward biotech stocks.
But despite those positive phase 3 results, AXS-05 ran into hurdles with the FDA as the agency noted deficiencies in Axsome's filing for a new drug application. These ultimately delayed the approval of the drug until this year.
Is Axsome destined to go higher?
Despite its impressive gains over the past five years, Axsome's market cap of $2.2 billion isn't extraordinarily high. Some analysts project that Auvelity could generate close to $2 billion in annual sales. Plus, the company has other products in its pipeline that could lead to more revenue. In total, the company projects that those candidates could generate up to $9 billion in annual sales. And that doesn't include the potential of narcolepsy medication Sunosi, which Axsome recently acquired from Jazz Pharmaceuticals. That drug is viewed as having the potential to generate at least $1 billion in annual sales.
With so much revenue growth potential on the horizon and the company's relatively modest valuation, it wouldn't be surprising to see Axsome continue to rise in value. For the same reasons, the company might also attract an acquisition bid.
Should you buy Axsome stock today?
For long-term investors, Axsome looks like a solid stock to buy and hold. Its struggles with getting Auvelity approved and its subsequent decline in share price over the past few years should serve as a good reminder not to get too excited about a single press release or clinical trial. Biotech stocks can be incredibly volatile, and Axsome is likely to remain volatile, as it's still an unprofitable, cash-burning business that poses some risk.
But its future is much brighter than the approval of Auvelity, and many analysts have recently upgraded the stock, setting price targets (which normally look at the next 12-month period) with an average of just over $100 for Axsome. However, in the longer term, the stock could soar even higher, especially if the FDA approves another one of Axsome's products. So for investors with higher risk tolerances, now likely wouldn't be too late to buy.