The Opthea Ltd (ASX: OPT) share price could be one of the biggest bargains on the ASX according to one leading broker.
Incredibly, this is despite the shares of the developer of novel biologic therapies for the treatment of eye diseases being up 150% over the last 12 months.
Which broker is bullish on Opthea?
According to a note out of Goldman Sachs, its analysts have retained their conviction buy rating and $5.20 price target on Opthea's shares.
Based on its last close price, this price target implies further upside of 200% for its shares over the next 12 months.
Why does Goldman Sachs like Opthea?
Goldman Sachs acknowledges that the valuations of small cap biotech shares are likely to face challenges in the current environment. However, it believes Opthea actually has the least COVID-19 risk of all companies across its coverage.
This is due to it being a pre-commercial company, with no active clinical trial recruitment/dosing, and a sound balance sheet.
It also notes that over the last month, the company's shares have underperformed the sector materially. Its shares are down 38% versus a 10% sector decline. As a result, the broker sees scope for outperformance when conditions begin to normalise.
In respect to its balance sheet, Goldman points out that Opthea completed a $50 million equity placement in December. This left it with a cash balance of $75.1 million and no debt at the end of the first half. The broker estimates that this secures its funding for 12 to 18 months of normal operations.
In light of this, the broker believes investors should look to the future. And that future could be very bright if all goes to plan.
Opthea's main focus is on its OPT-302 combination therapy, which is targeting wet age-related macular degeneration and diabetic macular edema. Last year the company unveiled very strong Phase 2b study results for OPT-302.
Which is a big positive given their sizeable market opportunity. The current standard of care treatments for wet age-related macular degeneration and diabetic macular edema had combined sales of ~US$10 billion in 2018.
I agree with Goldman Sachs on Opthea and would be a buyer of its shares. Though, there is always a risk that its phase 3 trial may not go as planned. So, it may be prudent to restrict an investment to just a small part of your portfolio.
