Why Scholar Rock Stock Bounced Higher on Monday

Key Points

• An analyst initiated coverage of the healthcare stock.

• He's flagged it as a buy at the current price.

• 10 stocks we like better than Scholar Rock ›

Monday was a good day to be invested in Scholar Rock (NASDAQ: SRRK) stock. The clinical-stage biotech received a nod from an analyst initiating coverage on its shares, a move that sent its price more than 6% higher across the day. That rate was well higher than the 0.5% increase of the S&P 500 index.

A bullish start

Well before market open, Leerink Partners' Mani Foroohar launched his coverage of Scholar Rock, rating the healthcare stock as an outperform (i.e., buy) at a price target of $51 per share. That anticipates considerable growth in the value of the company's equity, as it's -- coincidentally -- more than 51% higher than Scholar Rock's most recent closing price.

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The biotech's leading investigational drug is apitegromab, an add-on therapy that targets a disorder called spinal muscular atrophy (SMA). According to reports, Foroohar's main source of optimism is the prospects for the drug, which is currently being reviewed for approval by both the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA, a regulator for the European Union).

In his inaugural note on Scholar Rock, the analyst also waxed bullish on the background of the company's team, characterizing it as the most experienced in the commercialization of rare diseases among its covered healthcare stocks.

High potential

If Scholar Rock can win approval from one or both of those major regulators for apitegromab, it would be well positioned for success. However, I need to caution that getting the green light isn't enough for a biotech -- a new medicine must be effectively rolled out and marketed if it's going to have any chance at success. So far, though, the indications look good for the company.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.