Post by savzak on Jun 4, 2015 12:28:23 GMT -5
There's More Where That Came From for MannKind (MNKD)
MannKind Corporation (NASDAQ:MNKD) has been oddly bullish over the past month, but for good reason..... and it ain't over yet.
By Bryan Murphy
Jun 4, 2015 9:14:34 AM PDT | 21 View(s) | No Comment(s) - Post a Comment Rating
StockHQ:
MNKD $5.93 +$0.39 +7.04%
Bryan Murphy
Just so there's no confusion, MannKind Corporation (NASDAQ:MNKD) shares aren't "worth" the $5.78 they're trading at right now. The $2.37 billion organization is only expected to generate about $50 million worth of revenue next year, as sales of its inhaled insulin drug Afrezza have been more than a bit slow. That doesn't mean MNKD isn't worth buying, though, now that it's rallying. Indeed, this stock is very much worth taking a shot on now, even if nobody's willing to talk about the true reason it's pushing higher now.
For those not familiar with it (if you're reading this, odds are you're familiar with it, but just to be sure...), MannKind sort of changed the world last year when the company won the FDA's approval of its inhaled insulin and delivery system. As small as simple as insulin injections have become, a needle is still a needles, and if it's not a little painful it's a little inconvenient. Afrezza, on the other hand, is simply breathed in through a device about the same size of inhaler an asthma sufferer would use.
The response has been.... mixed. As this Los Angeles commentary explains, diabetics who have used it tend to like it and want to stick with it. The problem is, it 's difficult to get a hold of in the first place, and it's not easily reimbursed by insurers.
Given enough time, Afrezza will make into enough people's hands and will garner enough repeat users to make it viable, perhaps even making it to the blockbuster ($1 billion in sales per year) some people were talking about a year ago. That's not going to happen anytime soon enough, however, to justify the price of $5.78 now or anytime in the foreseeable future.
So why is MNKD a "buy" now? Above all else, know that it's a trade and not a long-term investment, meant to be a short-term ride to higher prices. To answer the question, though, MNKD is most likely the beneficiary of a short squeeze, which somewhat artificially pushes the price higher.
Short selling is the practice of selling a stock now at a high price with the hope of buying it back later at a lower price and profiting from the difference.... rather than "buy low, sell high", it's "sell high, buy low" (and yes, it's perfectly legal). But, just as is the case when demand is rampant, those buybacks needed to close out a short trade cause the stock to move higher, because buying demand is buying demand no matter what form it comes in.
And make no mistake - the short selling of MNKD has been rampant for a while.
As of the middle of May, 44% of the stock's float was held as short trades that will need to be closed out - with purchases of the stock - before any profit can be taken. For perspective, the average short interest for the typical stock is less than 3%.... often much less.
In any case, in the same way a little bullishness creates panic from would-be buyers due to the fear of missing out on a gain, a rally from a stock also creates a panic from short-sellers who fear seeing their profits wither away... or perhaps even fear their small loss is going to become a big loss. Remember, a rising stock works against the short-seller, who wants to "buy low."
And yes, the 69% gain from the lows hit by MannKind Corporation four weeks ago not only caught a bunch of unsuspecting short-sellers off guard, but have almost certainly created a wave of panic that inspired some buying.... to close out short trades before things got any worse.
As for how much of that short interest has been closed out since the middle of May, odds are good the short interest ratio is still closer to 44% than it is to 0%, so there's a lot of proverbial meat left on the bone. While any so-called short squeeze effect from here isn't likely to be as red hot as the past four weeks again, there's still enough gas left in the tank to keep pushing the stock higher now that the short-sellers are backpedaling, and panicked.
