What happened
Shares of the metabolic disease specialist Viking Therapeutics (VKTX -1.69%) were up by 6.6% on slightly below-average volume as of 1:56 p.m. ET Wednesday afternoon. The biotech's stock is heating up in response to a positive take by the private investment bank Roth Capital Partners.
The firm initiated coverage today on Viking's stock, rolling out a $32 per-share price target on the biotech in the process. This notable 12-month price target implies a hefty upside potential of 55% relative to Tuesday's close.
So what
Roth's stately price target isn't the only reason investors are piling into the biotech today. The firm also stated that its lead product candidates in obesity (VK2735) and nonalcoholic steatohepatitis (NASH) (VK2809) sport favorable clinical profiles that bode well for their long-term success.
By 2035, Roth's team said VK2735 has the potential of hitting $6.1 billion in sales, while VK2809 may haul in as much as $3.1 billion in the underserved NASH setting. To put these figures into context, Viking kicked the day off with a market cap of approximately $2.1 billion.
Now what
Is this positive analyst coverage a good reason to buy Viking's stock? In truth, Roth's notes aren't anything new. Most of the biotech's bulls are well aware that VK2809 and VK2735 might be woefully undervalued right now. The fairly low volume underlying this upward move speaks to this strong possibility.
In effect, this mid-single-digit bounce appears to be the result of day traders taking advantage of Roth's coverage, not an influx of new, long-term shareholders. That being said, this small-cap pharma stock does quite possibly sport an asymmetric risk-to-reward opportunity. Roth's positive coverage underscores this point.
