More Upside For Sarepta Stock?

Sarepta Therapeutics stock (NASDAQ: SRPT) staged a dramatic reversal Wednesday, with shares surging 33% in extended trading after announcing a sweeping restructuring plan that includes laying off 500 employees – nearly 40% of its workforce of over 1,300. The company also intends to discontinue several gene therapy programs, including most limb-girdle muscular dystrophy developments. The workforce reduction and research program cuts are likely to deliver over $400 million in annual cost savings by 2026 for Sarepta.

The market’s positive response reflects investor relief at management’s decisive action to address the company’s deteriorating finances. With shares down 88% over the past year and trading near 52-week lows, the $400 million in annual cost savings significantly improves Sarepta’s previously troubling cash burn rate and should address its concerning debt-to-equity ratio of 63%.
The restructuring creates an intriguing turnaround story – transforming Sarepta from a high-spending, pipeline-heavy biotech into a focused organization centered around its Duchenne franchise. However, this increased dependence on Elevidys, which generated 43% of Sarepta’s total revenues, amplifies risks if further safety issues emerge.

SRPT appears significantly undervalued, currently trading at roughly 1x its trailing revenues, a stark contrast to its three-year average price-to-sales ratio of 9x. Analysts’ average price target of $48 suggests nearly 2x upside potential from the current $25, provided cost-cutting measures restore profitability and the core Duchenne business stabilizes.

However, SRPT is a high-risk biotech investment marked by extreme volatility, evident in its dramatic price swings from $172 to recent lows around $18. This is further underscored by its historical underperformance against the S&P 500 during major market downturns. For instance, in the 2022 Inflation Shock, SRPT plunged 63.2% (vs. the S&P 500’s 25.4%) and has yet to recover. During the 2020 COVID-19 Pandemic, it dropped 54.9% (vs. the S&P 500’s 33.9%) but fully recovered. Similarly, in the 2008 Global Financial Crisis, SRPT plummeted 85.0% (vs. the S&P 500’s 56.8%), eventually recovering by 2012.

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