What happened

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.

So what

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."

Hand drawing psilocybin chemical structure

Image source: Getty Images.

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.  

Now what

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.