Will Arrowhead Stock Rebound After A Large 30% Decline Last Week?

[Updated: 7/7/2021] ARWR Stock Decline

The stock price of Arrowhead (NASDAQ: ARWR), a biopharmaceutical company that develops RNA interference therapies, has seen a large 30% fall over the last five trading days. The decline came after the company decided to pause its early stage clinical trials for AROENaC1001, the company’s investigational treatment for cystic fibrosis. The decision was taken after this drug showed unexpected signals of local lung inflammation in a study on animals.

Now that ARWR stock has fallen 30% in just five days, will it resume its downward trajectory over the coming weeks, or is a rise in the stock imminent? According to the Trefis Machine Learning Engine, which identifies trends in the company’s historical stock price data, returns for ARWR stock average nearly 3% in the next one-month (21 trading days) period after experiencing a 30% drop over the previous week (five trading days).

For Arrowhead, most of its valuation comes from its pipeline of drugs for liver related diseases (see more details on pipeline in the updates below), and a large 30% decline last week on development around AROENaC1001 appears to be overdone. We believe it will be prudent for long-term investors to use the recent fall to buy ARWR stock for better gains.

But how would these numbers change if you are interested in holding ARWR stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Arrowhead stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

Some Fun Scenarios, FAQs & Making Sense of Arrowhead Research Stock Movements:

Question 1: Is the average return for Arrowhead Research stock higher after a drop?

Answer: Consider two situations,

Case 1: Arrowhead Research stock drops by -5% or more in a week

Case 2: Arrowhead Research stock rises by 5% or more in a week

Is the average return for Arrowhead Research stock higher over the subsequent month after Case 1 or Case 2?

ARWR stock fares better after Case 2, with an average return of 4.6% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 8.3% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Arrowhead Research stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Arrowhead Research stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For ARWR stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Arrowhead Research after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although ARWR stock appears to be an exception to this general observation.

It’s pretty powerful to test the trend for yourself for Arrowhead Research stock by changing the inputs in the charts above.

[Updated: 3/9/2021] ARWR Update

In Q4 2020, we discussed why Arrowhead stock (NASDAQ: ARWR), a biopharmaceutical company that develops RNA interference therapies, looks attractive despite a stellar 16x move since early 2018. The stock has had a volatile ride since then. It went up from levels of $60 towards the end of October 2020 to around $90 levels in mid February 2021, before dropping to $65 currently, as investors booked profits after a large 3.6x rally since the March 2020 lows of $25.

In the first week of February, 2021, the company reported its Q1 fiscal 2021 results, with a loss per share of $0.20, compared to the $0.17 profit per share per the consensus estimates. This can be attributed to the company’s increased R&D and G&A expenses, clubbed with lower licensing revenue from Janssen. Though the stock didn’t drop immediately after the results, some of the analysts downgraded their revenue and EPS estimates for 2021, resulting in a correction for ARWR stock later in the month.

After a large 24% drop over the last ten days, ARWR stock, at levels of $65, now appears oversold, in our view. The company’s revenues are estimated to grow 2.5x from $88 million in fiscal 2020 to $220 million in fiscal 2022, driven by higher licensing revenues, and with margins expected to improve, the company’s losses will narrow going forward, boding well for the stock. Looking at the near term, based on our machine learning analysis of trends in the stock price over the last few years, we believe that there is a strong chance of a rise in ARWR stock over the next month (twenty-one trading days). See our analysis on Arrowhead Stock Chances of Rise for more details. Curious about the possibility of rising over the next quarter? Check out the ARWR Stock AI Dashboard: Chances Of Rise And Fall for a variety of scenarios on how ARWR stock could move.

[Updated: 10/29/2020] Buy Or Sell Arrowhead Stock

Despite a 3x growth since the March 18 lows of this year, at the current price of around $60 per share we believe Arrowhead (NASDAQ: ARWR), a biopharmaceutical company that develops RNA interference therapies, looks attractive and it can see significant upside from the current levels. ARWR stock has rallied from $21 to $60 off its recent bottom compared to the S&P which moved 36% over the same period, with resumption of economic activities as lockdowns are gradually lifted. ARWR stock is also up a whopping 16x from levels seen in early 2018, over two years ago.

ARWR stock has fully recovered to the levels of around $60 seen at the beginning of this year. Despite the healthy rise since the March 18 lows, we feel that the company’s stock still has potential given its recent deal with Takeda Pharmaceuticals. We discuss more in the sections below.

Some of this 16x rise since late 2017 is justified by the roughly 437% growth seen in Arrowhead revenues from 2017 to 2019, which clubbed with a 27% increase in total shares outstanding due to issuance of shares translated into a 323% surge in revenue per share. The sales are likely to trend higher over the coming years, and the stock could see a significant upside from the current levels in our view. Our dashboard, ‘What Factors Drove 1576% Change in Arrowhead Stock between 2017 and now?‘, has the underlying numbers.

So what’s the likely trigger and timing for further upside?

The global spread of coronavirus has resulted in fewer hospital visits and the postponement of elective surgeries, thereby impacting the pharmaceuticals businesses in general. That said, Arrowhead’s stock price surge is due to company-specific factors. Firstly, Arrowhead rival Vertex Pharma noted that it would stop developing its potential treatment for alpha-1 antitrypsin deficiency, a genetic condition that can cause lung or liver disease, due to safety concerns. Investors likely view this as a positive for Arrowhead, which is also developing AATD drugs.

Secondly, Arrowhead announced a collaboration with Takeda Pharmaceutical to develop a drug for the treatment of a rare inherited disorder that leads to lung disease and cirrhosis. Arrowhead will receive $300 million up front, with subsequent payments totaling up to $740 million. Takeda will receive an exclusive license to commercialize the treatment outside the US, and the companies will develop it together in the US. Note that there are no approved therapies for alpha-1 antitrypsin-associated liver disease, and it often leads to liver transplants. This means that the potential peak is very high, touted to be over $2.5 billion, compared to the company-wide revenues of $169 million.

Given the high growth, the company’s P/S ratio is also very high, though it has declined from 64x in 2018 to 35x by the end of 2019, and it will likely decline further to more reasonable levels over the coming years. That said, a decline in P/S ratio will be more than offset by growth in RPS, given the expected surge in revenues, and thereby resulting in higher levels for ARWR stock.

For now, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market since 2016

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