GW Pharmaceuticals PLC (GWPH) Drug Data Bursts Bears' Bubble

Analysts are seemingly the only ones with faith in GW Pharmaceuticals PLC-ADR (NASDAQ:GWPH)

by Josh Selway

Published on Dec 24, 2015 at 10:14 AM

Bears have been feasting on GW Pharmaceuticals PLC-ADR (NASDAQ:GWPH) recently, as the shares have lost almost half their value since hitting a record peak of $133.98 in late June, while underperforming the S&P 500 Index (SPX) by roughly 32 percentage points during the past three months. For instance, short sellers control 9% of the stock's float. At average daily volumes, it would take almost six sessions for them to buy back their short shares. 

Option traders, too, have taken the bearish road. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GWPH's 10-day put/call volume ratio stands at 5.61, which is just 4 percentage points from an annual peak. In other words, there's been a greater-than-usual appetite for long puts over long calls recently.

Echoing this, the biotech stock's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.72, showing put open interest outweighs call open interest by a wide margin, at least among options that expire within the next three months. What's more, this SOIR is higher than 91% of readings from the past year, revealing short-term speculators are more put-skewed than normal. 

On the other hand, analysts have remained fully in the bulls' corner. All six brokerage firms that track GWPH say it's at least a "buy," and its average 12-month price target resides at $138.83 -- about two times current levels. 

And today, analysts look like the smart ones, with GW Pharmaceuticals PLC-ADR (NASDAQ:GWPH) 2.9% higher at $69.06. The shares are getting a lift from a journal article that said the drug company's epilepsy treatment, Epidiolex, was able to reduce the frequency of seizures among patients.

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