At the small side of the market there are opportunities to generate incredible returns.
However, it is worth remembering that the risks are also very high.
So, the (potentially) cheap stock that I am going to talk about in this article would only be suitable for investors with a high tolerance for risk.
That stock is Paradigm Biopharmaceuticals Ltd (ASX: PAR), which is currently trading at 32.5 cents. This is well short of the late-stage drug development company's 52-week high of $1.68.
But one broker that believes it has the potential to return close to those lofty levels is Bell Potter.
According to a recent note, the broker has a speculative buy rating and $1.40 price target on its shares. This implies potential upside of approximately 325% for investors over the next 12 months.
To put that into context, if Bell Potter is on the money with its recommendation, a $10,000 investment would turn into $42,500.
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Why could Paradigm be a cheap ASX stock?
Bell Potter highlights that the company is well funded and not far off launching its treatment for osteo arthritis of the knee.
In respect to its treatment, the broker appears very excited by its potential. It said:
MRI quantitative data demonstrated that compared to placebo, patients on drug experience a) an increase in cartilage volume and thickness from baseline, most notably in the medial compartment where the highest proportion (72%) of knee OA occurs; b) an average 17% reduction in bone marrow lesion volume; and c) a reduction in inflammation (synovitis). As far as we are aware no other molecule has demonstrated a capability to apparently halt disease progression, let alone regenerate cartilage.
In our view the findings are strongly supportive of future commercial adoption and are likely to enhance upcoming discussion with both regulators and commercialisation partners.
In light of this, the broker believes the risk/reward from an investment in this cheap ASX stock is compelling for investors. It concludes:
PAR continues to expect to commence dosing in the phase 3 program in 1Q CY24. The company is funded though 1Q CY2024 and is yet to partner in a single region or indication. PAR intends to proceed with a provisional approval application for iPPS in Australia, which if successful may see the drug on market in 2025. Valuation is maintained at $1.40 and we retain our Buy (Speculative rating). There are no changes to earnings. The next major catalysts include potential non dilutive funding deal(s).
