When thinking of a biotech market mover Paradigm Biopharmaceuticals (ASX: PAR) instantly comes to mind. Paradigm, through its repurposed drug Zilosul, aims to alleviate the suffering and cartilage degradation of Osteoarthritis. PAR’s impressive clinical developments in osteoarthritis and 240% surge in 2019 captivated both the scientific and investment world.
Paradigm kickstarted 2020 off with a 40% increase. However, the overinflated fear around the coronavirus gave investors an excuse to sell. In turn, PAR took a hit, currently trading at $2.85. Today we will discuss why PAR is down 30% this month and why PAR is worth watching now more than ever?
Why PAR is down 30% in a month?
It can be hard to wrap your head around how a company surges 240% over 2019, 40% in the first month of 2020 but is now trading at a 30% decrease. PAR is trading at $2.85. Which wipes away the last three months of growth.
Leaving current holders confused, frustrated and a bit lost as to the future share price trend. Especially, as PAR has reported no bad news.
The only natural conclusion to be drawn is that PAR investors saw decreases in the share price and decided to sell to avoid any further losses. In behavioural economics, we call this loss aversion. The chart underneath illustrates how loss aversion is the key factor in driving PAR down over the past month.
Source: CommSec volume chart of Paradigm Biopharmaceuticals
Why PAR is worth watching now more than ever?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Despite the fairy tale story, PAR will likely decline in the short term as fear continues to permeate the stock market.
Now some investors would view PAR’s decline with pessimism. However, as an opportunist, I would be looking at PAR’s decline as an opportunity.
Before February’s bearish trend “stocks were experiencing growth that had no fundamental reason to increase”. However, Paradigm’s 335% increase over the past 13 months was justifiable.
PAR built up an impressive bank of clinical data in 2019, namely FDA approval on Zilosul. Adding to PAR’s clinical data is a low D/E ratio of 1:41.6 and cash of $70,933,651.
Thus, with PAR being fundamentally strong and having a full 2020 calendar of PSE’s they are likely to bounce back in the long term. Especially with Morningstar re-rating PAR as undervalued yesterday with a fair value of $4.15. However, this does not mean you jump on PAR immediately. Instead, think logically, do some research and create an entry point that suits your financial criteria.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of YIG.