Why Savara Inc. Is Soaring Today

What happened

In response to favorable analyst coverage, shares of Savara (NASDAQ: SVRA), a clinical-stage biotech focused on rare lung diseases, soared 23% as of 12:10 p.m. EDT on Friday.

So what

Savara’s investors can thank Evercore ISI analyst Joshua Schimmer for today’s big jump. Schimmer initiated coverage on Savara today and gave the stock an outperform rating. He also slapped a $40 price target on the company’s stock. For context, Savara closed yesterday’s trading session at $9.42 per share.

Given the bullish vote of confidence and huge implied upside, it isn’t hard to figure out why traders are bidding up shares today.

Image source: Getty Images.

Now what

Savara shared a clinical update with investors a few days ago that was very upbeat. The company stated that two patients who have a specific bacterial infection associated with cystic fibrosis used its inhalable granulocyte-macrophage colony stimulating factor (GM-CSF) and showed meaningful clinical improvement. In fact, a pulmonologist from the Mayo Clinic even went so far as to call the results “remarkable” and noted that the two patients showed “meaningful improvements in weight gain and lung function.”

Savara is currently enrolling patients in a phase 2 study and expects to have topline results in the first half of 2019.

So given the positive clinical update and bullish analyst coverage, are Savara’s shares a buy? I’d answer that question with a firm “no.” My reasoning is that Savara’s track record of long-term value creation is about as bad as it gets:

SVRA data by YCharts.

Since I’m a big believer that winners tend to keep on winning, I see no reason to put any capital behind a company with such a terrible track record, unless it can actually prove that its technology is the real deal. Since Savara is still in the clinical stage, it will be quite some time before that could happen. For that reason, I’m content to monitor this company’s turnaround story from the safety of the sidelines.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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