Here's Exactly Why Wall Street Thinks Viking Therapeutics Stock Could Soar 207% Over the Next 12 Months

Investors are turning away from somewhat speculative and unprofitable stocks right now, given the significant volatility and economic-related uncertainty we face. But what if this rotation is creating attractive buying opportunities? Consider Viking Therapeutics (NASDAQ: VKTX), a biotech company that has underperformed this year. The drugmaker's shares are down by 15% to date. Yet, Wall Street has high hopes for Viking Therapeutics. Based on its average price target of $92.33 (according to Yahoo! Finance), the stock could soar by 207% over the next 12 months, given its share price as of this writing. Why does Wall Street have such high expectations for Viking Therapeutics? And is it worth investing in the company right now? Let's find out.

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Going up against Goliaths

Viking Therapeutics has no product on the market and generates no revenue. That makes the stock inherently risky. However, the company has several promising pipeline candidates. Viking Therapeutics is developing anti-obesity medicines. This area may be one of the most popular in the biotech industry right now. The leading approved weight-loss therapy, Zepbound, continues to post impressive sales. Here's the good news: There are reasons to think the market boasts massive white space.

The prevalence of obesity in the U.S. is around 40% according to the U.S. Centers for Disease Control and Prevention (CDC). The CDC's definition relies on body mass index (BMI), which has several limitations. More recent research that takes into account the drawbacks of BMI has found that the percentage of people in the U.S. who are obese is around 70%. But according to some data, only 12% of Americans are currently on GLP-1s, and only 18% have ever been on them.

Whichever definition we choose, this area is arguably still underpenetrated. That's the unmet need Viking Therapeutics aims to address. The company's leading candidate is called VK2735. It is currently undergoing a pair of phase 3 studies, one that features obese patients with diabetes, and another for patients without diabetes. Both are fully enrolled, and considering their 78-week length, we could see preliminary data for both within the next 12 months. Positive results here would be a major catalyst.

Of note, VK2735 performed well in a phase 2 clinical trial, achieving a mean weight loss of up to 14.7% after 13 weeks. Of course, Viking Therapeutics isn't the only company that is looking to enter this space. It is already dominated by Eli Lilly and Novo Nordisk, with several other pharmaceutical giants developing their own weight-loss options. Provided Viking Therapeutics' candidate delivers efficacy numbers on par with those of the leading drugmakers, the market will handsomely reward the stock.

Mind your risk tolerance

Viking Therapeutics is working on other projects. The company is developing an oral formulation of VK2735, for which it expects to begin phase 3 studies in the fourth quarter. Viking Therapeutics is also running a maintenance study. It is testing various options, including weekly, bi-weekly, and monthly doses (after an initial weekly dosing schedule), to see if that will help keep the weight off. Lastly, Viking Therapeutics has another investigational anti-obesity therapy in preclinical studies for which it expects to start clinical trials during the second quarter.

Progress with these other programs over the next 12 months could also jolt the stock, although the most important things to monitor will be VK2735's phase 3 studies. So, is Wall Street right to be bullish on the stock? My view is that although the company's shares could indeed gain significant momentum, provided VK2735 can ace late-stage trials, it is unlikely to match The Street's price target in the next year. What's more, the stock could sink if Viking Therapeutics fails to post strong phase 3 results for VK2735. In other words, this is a risky stock, and only investors comfortable with heightened volatility should consider it.

Prosper Junior Bakiny has positions in Eli Lilly, Novo Nordisk, and Viking Therapeutics. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.