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Is this penny stock a buy for me after its 14% jump today?

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·3-min read
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AIM-listed Sareum Holdings (LSE: SAR) is a big gainer in today’s trading, with a 14% increase. At 4.3p, it is now near all-time highs. As impressive as the rise is, this is not a one-off increase for the pharmaceuticals penny stock. It has jumped a whole 760% in the past year!

This indicates that investors have been bullish on the stock for a while now. A look at its share price chart reveals initial indications of interest in late March last year. This was soon after it talked of exploring potential Covid-19 treatments. With some hiccups along the way, interest in the stock has risen significantly since.

Why are investors bullish about Sareum Holdings?

Today’s increase should be seen in this ongoing context, in my view. Three recent updates have got investors all fired up. First, it disclosed a fund raise of £900,000 from a high net worth individual. Among other things, this will be channeled towards further exploration of Covid-19 treatments. It also received a government grant for the same in December last year for six months.

Then, Sareum revealed encouraging initial results from the use of its drugs. Finally, it also said that if the studies prove successful, it will apply for government funding for “potentially ground-breaking Covid-19 treatments”.

The company, which otherwise focuses on treatments for cancer and autoimmune diseases, could be on the verge of a breakthrough if its treatment is found to be successful in curing Covid-19. But that remains to be seen. So far, the Cambridge-based company is not revenue-making. Also, I do not know if and when the firm’s potential will translate into real profits.

Managing the risks

It follows that, despite all its potential, Sareum is a risky investment. In such cases, I set aside no more than 1% of my portfolio. So, even if the share price falls to nothing, it would not be a panic-inducing loss to me.

In fact, if I am really interested in buying Covid-19-related shares, I would consider buying shares of big pharmaceutical companies.

Alternative investments in FTSE 100 stocks

One is the FTSE 100 giant AstraZeneca, whose vaccine developed in collaboration with the University of Oxford needs no introduction. The other is fellow FTSE 100 company Hikma Pharmaceuticals, which produces the Covid-19 treatment drug Remedesivir for US-based Gilead Sciences.

Neither stock promises the meteoric growth my capital could see if I bought Sareum Holdings, but they do not hold the same risks either. They are large, stable companies that are profitable and have growing revenues. Their share prices have also come down from last year’s highs, as investors started buying up coronavirus impacted stocks last November. So I reckon it is only a matter of time before they go back up to those highs.

In sum

I think both are good long-term buys. Sareum could prove to be one too, but right now the penny stock looks too much like a speculative investment to me.

The post Is this penny stock a buy for me after its 14% jump today? appeared first on The Motley Fool UK.

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Manika Premsingh owns shares of AstraZeneca. The Motley Fool UK has recommended Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021

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