Synairgen (LSE: SNG) is an AIM stock that has been undeniably volatile. But over the past month, the shares have fallen more than 30%. It’s a stark contrast from the 85% increase during the last 12 months. Of course, historical performance isn’t an indication of future returns.
The AIM stock is now trading around the 100p mark. I’d use this dip as a buying opportunity as I reckon this company still has bags of potential. Here’s why.
Why have Synairgen shares been falling?
I think the main reason why this AIM stock has fallen significantly is due to the successful rollout of Covid-19 vaccines.
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It’s worth noting here that the stock rallied last year on the hopes of its SNG001 product. Unlike a vaccine, this is a treatment for coronavirus. So when there was doom and gloom about the pandemic, this stock soared after it announced that trials for SNG001 were successful.
In the UK the jabs have been rolled out to tens of millions of people, so the euphoria surrounding the AIM stock has subsided. I guess that early investors have also taken their profits.
Another reason why the shares have fallen is that the news flow regarding the treatment has somewhat reduced. The clinical trials for SNG001 will take time, but I’m optimistic for a positive outcome.
The potential
I think it’s important to realise that the pandemic isn’t over yet. While things in the UK may be improving, there are other countries that are still suffering the impact of Covid-19. And let’s not forget the threat of virus variants. For this reason, a treatment for coronavirus remains extremely important.
So far, SNG001 has proved successful in trials. It’s been tested on hospitalised Covid-19 patients as well as as people who are suffering from the illness at home and don’t require hospitalisation.
In its announcement at the end of April, CEO, Richard Marsden said the “SNG001 treatment led to a threefold likelihood of recovery to ‘no limitation of activities’ in the markedly/severely breathless population compared to those on placebo in the home and hospital setting, and that further analyses reinforce our previous findings”.
To me, this news is very encouraging. It’s also reassuring that international Phase III trials in hospitalised patients requiring supplemental oxygen are due to commence later this year.
Risks
Synairgen is making progress but still has a long way to go. There’s no guarantee that the Phase III trials will be successful.
The company hasn’t made any sales yet and is unprofitable. There’s a lot riding on SNG001. And it could make or break Synairgen. This isn’t for the fainthearted. So I’d only invest what I could afford to lose.
For now, the company has enough cash to see it through further clinical trials. It managed to raise money last year and as of the end of 2020, Synairgen was sitting on a cash balance of £75m.
But if there are any setbacks, it may require further funding. And there’s no guarantee it will receive additional money. This could impact the stock.
My view
Despite these risks, I’d buy Synairgen shares at the current price. As a long-term investor, this company has bags of potential even after Covid-19. It’s research and findings could prove useful to another large firm. Hence the AIM stock could be a potential takeover target.
