Should You Buy Poseida Therapeutics, Inc. (PSTX) After Golden Cross?

Shares of Poseida Therapeutics, Inc. (PSTX) have gained 282.9% over the past four weeks to close the last trading session at $9.38, but there could still be a solid upside left in the stock if short-term price targets of Wall Street analysts are any indication. Going by the price targets, the mean estimate of $14 indicates a potential upside of 49.3%.

The mean estimate comprises three short-term price targets with a standard deviation of $5.29. While the lowest estimate of $10 indicates a 6.6% increase from the current price level, the most optimistic analyst expects the stock to surge 113.2% to reach $20. It's very important to note the standard deviation here, as it helps understand the variability of the estimates. The smaller the standard deviation, the greater the agreement among analysts.

While the consensus price target is highly sought after by investors, the ability and unbiasedness of analysts in setting price targets have long been questionable. And investors making investment decisions solely based on this tool would arguably do themselves a disservice.

However, an impressive consensus price target is not the only factor that indicates a potential upside in PSTX. This view is strengthened by the agreement among analysts that the company will report better earnings than what they estimated earlier. Though a positive trend in earnings estimate revisions doesn't give any idea as to how much the stock could surge, it has proven effective in predicting an upside.

Here's What You May Not Know About Analysts' Price Targets

According to researchers at several universities across the globe, a price target is one of many pieces of information about a stock that misleads investors far more often than it guides. In fact, empirical research shows that price targets set by several analysts, irrespective of the extent of agreement, rarely indicate where the price of a stock could actually be heading.

While Wall Street analysts have deep knowledge of a company's fundamentals and the sensitivity of its business to economic and industry issues, many of them tend to set overly optimistic price targets. Are you wondering why?

They usually do that to drum up interest in shares of companies that their firms either have existing business relationships with or are looking to be associated with. In other words, business incentives of firms covering a stock often result in inflated price targets set by analysts.

However, a tight clustering of price targets, which is represented by a low standard deviation, indicates that analysts have a high degree of agreement about the direction and magnitude of a stock's price movement. While that doesn't necessarily mean the stock will hit the average price target, it could be a good starting point for further research aimed at identifying the potential fundamental driving forces.

That said, while investors should not entirely ignore price targets, making an investment decision solely based on them could lead to disappointing ROI. So, price targets should always be treated with a high degree of skepticism.

Here's Why There Could be Plenty of Upside Left in PSTX

Analysts' growing optimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates higher, could be a legitimate reason to expect an upside in the stock. That's because empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

The Zacks Consensus Estimate for the current year has increased 34.7% over the past month, as three estimates have gone higher compared to no negative revision.

Moreover, PSTX currently has a Zacks Rank #2 (Buy), which means it is in the top 20% of more than the 4,000 stocks that we rank based on four factors related to earnings estimates. Given an impressive externally-audited track record, this is a more conclusive indication of the stock's potential upside in the near term. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here

Therefore, while the consensus price target may not be a reliable indicator of how much PSTX could gain, the direction of price movement it implies does appear to be a good guide.

Zacks Investment Research

Have you been paying attention to shares of Poseida Therapeutics, Inc. (PSTX)? Shares have been on the move with the stock up 282.9% over the past month. The stock hit a new 52-week high of $9.41 in the previous session. Poseida Therapeutics, Inc. has gained 179.2% since the start of the year compared to the 1.5% move for the Zacks Medical sector and the -6.3% return for the Zacks Medical - Biomedical and Genetics industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on November 7, 2024, Poseida Therapeutics reported EPS of $0.21 versus consensus estimate of $-0.42.

For the current fiscal year, Poseida Therapeutics is expected to post earnings of -$1.03 per share on $148.38 million in revenues. This represents a 24.82% change in EPS on a 129.32% change in revenues. For the next fiscal year, the company is expected to earn -$1.80 per share on $60 million in revenues. This represents a year-over-year change of -75.56% and -59.56%, respectively.

Valuation Metrics

Poseida Therapeutics may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.

Poseida Therapeutics has a Value Score of D. The stock's Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of B.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Poseida Therapeutics currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Poseida Therapeutics passes the test. Thus, it seems as though Poseida Therapeutics shares could have potential in the weeks and months to come.

How Does PSTX Stack Up to the Competition?

Shares of PSTX have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is MiMedx Group, Inc (MDXG). MDXG has a Zacks Rank of # 2 (Buy) and a Value Score of B, a Growth Score of A, and a Momentum Score of A.

Earnings were strong last quarter. MiMedx Group, Inc beat our consensus estimate by 40%, and for the current fiscal year, MDXG is expected to post earnings of $0.30 per share on revenue of $342.97 million.

Shares of MiMedx Group, Inc have gained 58.9% over the past month, and currently trade at a forward P/E of 31.29X and a P/CF of 49.08X.

The Medical - Biomedical and Genetics industry is in the top 24% of all the industries we have in our universe, so it looks like there are some nice tailwinds for PSTX and MDXG, even beyond their own solid fundamental situation.

Zacks Investment Research