Ensysce Biosciences Inc (NASDAQ: ESNC) stock is looking increasingly like a momentum trade as it is up 85% premarket this morning following the over 100% price since Tuesday.
The reason for this startling price rise is an upgrade in analysts' views of Ensysce prospects.
The essential offering at Ensysce is that the country is in the grip of an opioid crisis. That’s undoubtedly true. The challenge, therefore, is to be able to deliver pain relief without the associated possible problems of addiction and overdose. Solving the one might largely solve the other – folks will tend not to overdose on something that doesn’t produce an addictive high – but Ensysce is addressing both problems. One half of the approach is to change the chemistry of the opioids so that the euphoria and thus addictive properties are removed. The other is to provide a time-release system into the dosing of the new approach so that overdose itself doesn’t happen.
Of course, Ensysce is in the development stage of the process here. Some parts are still in Phase I development, the earliest real-world testing. One main trial has passed Phase I and so moved up the development pipeline. The urgency of finding a solution to this opioid problem does mean that Ensysce can gain access to fast-track procedures at the FDA, shortening the development timeline substantially.
However, it’s still some years before anything might, possibly, reach market. This means that there’s very little hard data on prospects for Ensysce or the stock price. No one’s sure how the Phase I trials are going to work out, let alone the later and necessary ones to prove efficacy and safety.
It’s possible to see the size of the addressable market assuming success, we can see that the authorities are at least interested – thus FDA fast-track access. But the actual success? This uncertainty is likely to lead to continued high volatility in the stock price and that, as we know, is a trading opportunity.
The particular trigger for this burst in activity is the publication of an analyst report. Brad Sorenson of Zacks Small Cap Research has a target price for the Ensysce stock price of $23. This is based on using a 25% discount rate – that’s high so takes account of a lot of uncertainty – and discounts future cash flow back at that rate.
The problem with such forecasts is that there’s a great deal of uncertainty still in there. So, as different probabilities are applied to different parts of the valuation process the implied stock price can and will swing wildly. Other analysts may well release to the market valuations based on slightly or wildly different assumptions of each probability. With that poverty of hard and real information that’s just what the market valuation is going to be based upon.
Given this the Ensysce stock price might well continue to be wildly variable. The task is to be a step or more ahead of that market sentiment so as to be properly placed to profit from changes in market viewpoint.
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