Forget AI Stocks: This Potentially Disruptive Biotech Could Soar By 181%, According to Wall Street

Some artificial intelligence (AI)-focused companies have delivered exceptional returns over the past few years, but some investors and analysts now believe we are in an AI bubble ready to burst. Even if that's not the case, it's worth considering stocks in other industries that could offer excellent returns. Take Viking Therapeutics (NASDAQ: VKTX), a biotech company looking to disrupt a fast-growing market.

Analysts believe this drugmaker is severely undervalued: Viking Therapeutics' average price target of $92.72 (according to Yahoo! Finance) implies an upside of about 181% from its current levels. Should investors purchase shares of Viking Therapeutics right now?

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The next 18 months could be decisive

Viking Therapeutics is developing therapies for chronic weight management. Given recent breakthroughs in this area -- and the fact that obesity is a serious, highly prevalent condition that is also linked to many others -- the weight-loss market is growing rapidly and will continue to do so well into the next decade. Naturally, this field is dominated by large and prominent pharmaceutical leaders, with many others looking to join the party.

Viking Therapeutics is a fairly small player in the game, but it does have a somewhat realistic shot at carving a niche. The company's leading candidate, VK2735, is undergoing pivotal clinical trials, including one in adults with obesity and diabetes and another in obese patients without diabetes. Both will measure weight loss over 78 weeks. We should see results from these studies next year. Viking Therapeutics is also developing an oral version of VK2735, which it expects to advance to phase 3 studies in the third quarter.

What's your risk tolerance?

What would allow Viking Therapeutics to match Wall Street's average price target, or at least get close to it? The biotech company will need to post strong phase 3 results for VK2735. Note that, since more weight-loss candidates have posted phase 2 and phase 3 results, the bar will be higher than it was two years ago. If Viking hopes to impress the market with VK2735, efficacy data will need to be competitive while also demonstrating reasonable tolerability, as gastrointestinal-related adverse reactions have been a problem for some weight-loss candidates (including oral VK2735).

If it manages to do so, Viking Therapeutics' shares could soar within the next 18 months, although even the bull case might not allow it to match Wall Street's lofty expectations in the next year. Viking Therapeutics could then establish a strong position in this growing space while recording solid revenue growth over the next five to 10 years. That's the best-case scenario. However, anything short of excellent phase 3 results for VK2735 will be a setback for the company.

And in that case, its stock price will sink. Viking Therapeutics might still find a way to regroup and recover after that, but its prospects certainly won't be stronger. In other words, there is substantial upside potential with the stock, but there is plenty of risk as well. Invest accordingly.

Prosper Junior Bakiny has positions in Viking Therapeutics. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.