Is SMMT Stock A Buy After Its Recent Plunge?

Forbes

2 days ago

POLAND - 2025/01/09: In this photo illustration, the Summit Therapeutics company logo is seen ... More displayed on a smartphone screen. (Photo Illustration by Piotr Swat/SOPA Images/LightRocket via Getty Images)
Summit Therapeutics (NASDAQ: SMMT) experienced a significant 30% decrease in its stock on Friday, May 30th, closing at $18. This sudden decline came even though the stock had doubled within the past year, driven by favorable updates regarding its lung cancer medication, ivonescimab. The recent drop was caused by a combination of trial outcomes.
On a positive note, ivonescimab, when used alongside chemotherapy, reduced the risk of disease progression or mortality by 48%. Furthermore, the company detected no major differences between Asian and Western patient demographics, which holds great importance for future research. Nevertheless, the trial fell short of achieving the 'statistically significant' criteria for overall survival – which the FDA requires for approval. This understandably caused investors to react strongly. However, upon reflection, these results aren't as negative as the market perceived. In fact, we believe this actually brings Summit closer to obtaining FDA approval for ivonescimab since it demonstrates a reduced risk of disease progression and efficacy outside of Asia. Separately, take a look at – Buy, Sell, or Hold HIMS Stock?
It's essential to keep in mind that Summit has yet to launch any commercial products, and ivonescimab has the potential to be a significant revenue generator. For biotech firms without market-ready products, their value hinges on the potential of their pipeline. The company has been depleting its resources, reporting net operating losses of $226 million last year and $610 million the year before.
Despite the drop on Friday, we believe Summit remains worth considering. Naturally, there are risks involved. Any negative developments regarding its drug pipeline could severely impact the stock – the reaction on Friday clearly demonstrated its sensitivity to setbacks. The stock also has a history of performing poorly during market declines, evidenced by its staggering 94% drop during the 2022 inflation crisis compared to a 25% decline in the S&P 500, and its 78% decrease during the 2020 COVID-19 market correction versus a 34% drop in the S&P 500.
Considering the latest results of ivonescimab, Summit Therapeutics could present a promising turnaround opportunity for investors willing to assess the risks involved. However, with numerous other robust investment choices available at present, careful consideration is necessary to determine if SMMT is the right selection. Keep in mind that there is always a significant risk associated with investing in a single stock, or a small number of stocks. Consider Trefis High Quality (HQ) Portfolio which, consisting of 30 stocks, has a proven track record of significantly outperforming the S&P 500 over the previous four-year period. Why is that? In aggregate, HQ Portfolio stocks offered superior returns with reduced risk compared to the benchmark index; they exhibited less volatility, as indicated by HQ Portfolio performance metrics.