Shares of Compass Pathways (NASDAQ:CMPS) were soaring 21.7% as of 12:26 p.m. EDT on Monday. The big jump came after short-seller Citron Research published a report online recommending the mental health company's stock.
Citron Research is primarily known for attacking stocks that it maintains have significant problems. But the short-seller views Compass Pathways as "the most compelling IPO of the year whose significance to humanity has the potential to be a generational stock."
Why does Citron like Compass Pathways so much? Compass is the leader in developing drugs based on a synthetic version of psilocybin, the active psychoactive ingredient in some kinds of mushrooms. The company has received breakthrough therapy status from the FDA for its experimental psilocybin therapy in treatment-resistant depression.
Citron thinks that Compass should be recognized as a "platform company that will expand psilocybin therapy into new indications beyond TRD." The short-seller believes that the healthcare stock could soar to $100 soon, putting its market cap at around $3.5 billion.
Investors should perform their own research before accepting Citron's positive opinion about a stock just as they should when the short-seller rakes a stock through the coals.
It could be a while before we know if Citron's optimism is warranted. Compass Pathways is currently evaluating experimental psilocybin therapy COMP360 in a phase 2b clinical study. The company expects to announce results from this study in late 2021.