(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Nektar Therapeutics (NKTR) has risen by approximately 570 percent over the past 52 weeks and almost 65 percent in 2018 alone. But the run may be set for a near-term pause, and the stock could decline by as much as 14 percent and drop to $84 from its current price around $94.
Shares of Nektar had surged tremendously over the past year and moved higher in November 2017, when a phase 1/2 trial for its immuno-oncology drug candidate NKTR-214 produced a positive outcome when used in combination with Bristol-Myers Squibb Co.'s (BMY) Opdivo. The positive results lead to Bristol-Myers and Nektar signing a commercialization agreement on February 14, and Bristol making a $1.85 billion upfront payment, in cash and stock.
Filling The Gap
Nektar's 15-minute chart that suggests its stock could fall to a range of between $84 and $88. That is where the shares gapped higher following quarterly results on March 1 that came in better than expected.
Should that gap be filled, it would result in Nektar falling by at least by 10 percent from its current price of $98, and possibly by as much as 14 percent to $84. A decline to that range would take the stock back to an uptrend that has now been in place since the shares broke out in late November, helping to provide support for the stock over the longer-term.
As a result of all the positive news over the past few months, the stock has risen extremely fast, and appears to have become overextended in the short-term. The stock hit a high of $105.75 on March 5, pushing the relative strength index (RSI) into overbought terroritory at 71. A reading above 70 is considered to be overbought.
But the relative strength has been trending lower for some time despite the stock's continued rise. The divergence which has taken place since late November would suggest that the stock could be setting up for a decline over the next few weeks.
Analyst's Price Target Are Rising
Analysts have been steadily raising their estimates on Nektar over the past few months. The average price target on the stock currently sits at approximately $91.50 and is lower than the stock's current price. (See also: Target Prices: The Key to Sound Investing.)
Nektar's future will depend heavily on how successful it can be with the continued development of its immuno-oncology treatment and the rest of its drug pipeline. Should the outlook for any of those drugs dimish, the stock could see much more than that a 10 to 15 percent correction.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.