It is no easy task to find a stock that may double in price. Most analyst upgrades and initiations on Dow or S&P 500 stocks come with upside projections of 8% to 15%. Upside of more than 25% implies that an analyst is extremely aggressive, and it is often in speculative stocks. So what happens when you hear an analyst call predicting that a stock could nearly double in value?
The freshest case is that of Cara Therapeutics Inc. (NASDAQ: CARA). A Janney Capital Markets research report on Cara Therapeutics noted a fair value estimate of $28.00. This is technically upside of 82% to its target, but what stands out here is that the consensus analyst target price is $29.00 and the highest analyst price target is $34.00. In fact, Thomson Reuters shows that $25.00 is the lowest analyst price target — almost $10.00 higher than the current share price.
Janney’s call is close enough to a potential double, but other analysts already have speculated that Cara could more than double. Janney’s Ken Trbovich, the analyst behind the report, has said that enrollment is complete in its Phase 2 study of oral CR845.
Where Janney’s call could easily imply that shares could double is in the assumptions if it makes it to market. Trbovich expects that CR845 could hit $200 million to $300 million in annual sales within five years of its launch. The firm’s discounted cash flow model actually came up with a $32.00 per share valuation for Cara. Trbovich said in his call:
We believe enrollment in Cara’s first proof-of-concept study of oral CR845 is now complete. This places Cara on track to confirm safety and establish potential efficacy for an oral formulation of CR845 in a target patient population for the first time in the fourth quarter of 2015. Demonstrating effectiveness of an oral form of CR845 to treat pain would significantly expand the commercial potential for CR845 in pain indications. With further study, it can also open the door to partnering opportunities for Cara to out-licensing oral CR-845.
More observations here also stood out. This Phase 2a trial was shown to be the first trial designed to measure the safety and potential effectiveness of oral CR845 in patients experiencing pain — in this case pain from osteoarthritis of hip and knee. The study involves twice daily dosing of four different doses with a twenty-fold difference in dose between the highest and lowest doses being tested. Janney’s report further said:
Cara initiated its first study of oral CR845 in patients experiencing pain in mid August. Although the study involves just two-weeks of dosing with CR845 the time from initial screening to final follow-up could last up to 38 days. As of October 23, the study centers are no longer actively recruiting patients, leading us to believe enrollment in the study is complete, the study is on track for completion and reporting of top-line results in December 2015.