Down 65% From Its 52-Week High, Is Viking Therapeutics Stock a Bargain Buy?

Viking Therapeutics (NASDAQ: VKTX) is a promising growth stock with a strong GLP-1 drug candidate in VK2735, which may eventually rake in significant revenue from the anti-obesity market. It has demonstrated encouraging results in clinical trials; however, it isn't approved just yet.

While the optimism surrounding the drug made Viking's stock a hot buy early last year, things have drastically cooled over the past six months during which it has plummeted more than 50%. As a result, the stock is now down 65% from its 52-week high of $89.10. Is this a good time to buy shares of Viking Therapeutics, or could more of a decline be coming this year?

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The case for buying shares of Viking stock today

Making a bullish case for Viking Therapeutics stock isn't difficult. VK2735 has helped participants in a phase 2 trial lose around 15% of their body weight -- and that's without a plateau observed, meaning that even higher weight loss is possible. That was over the course of just a 13-week study; over a longer time frame, it may perform even better.

However, even at 15%, if those results hold up for the long term, that can make the drug a formidable alternative to other GLP-1 injections. A phase 3 trial is planned later this year.

The drug is administered subcutaneously, but Viking also has an oral version, which is in earlier stages. In a phase 1 trial last year, the oral version of VK2735, which is taken daily, helped participants lose more than 5% of their body weight after 28 days. A phase 2 trial for that treatment is currently underway.

The GLP-1 drug market could be worth $200 billion based on some analyst projections. There's massive potential here for Viking and other companies vying for a piece of the market. Last year, Viking's market capitalization rose to more than $9 billion due to the hype, which may have appeared excessive for a company without an approved drug in its portfolio.

Today's market cap of around $3.5 billion could make for a more tenable option to buy right now given the potential upside that Viking possesses. If it can get VK2735 approved, the stock's valuation could take off to new heights.

The case for holding off on Viking's stock

Early-growth stocks come with significant risks, and pharma stocks like Viking are no exception. If there's even a hint in clinical trials that VK2735 isn't living up to expectations or perhaps that there are concerning side effects with taking the drug, that could lead to more of a sell-off in the share price.

Healthcare investors are often looking for signs of whether a drug may obtain approval long before regulators make a decision on it. Right now, VK2735 is still in good shape. But until and unless the Food and Drug Administration (FDA) approves a drug, there will always be some doubts.

In the meantime, the losses continue to pile up. Last year, Viking's net loss totaled $110 million, rising from $86 million in the previous year. As the business spends more on clinical trials and developing drugs, its costs (and losses) may rise even further. Losses and cash burn may be acceptable if investors believe the company will end up with a blockbuster drug in the future. But if that doesn't end up happening, then it will have been all for naught.

There's a lot riding on VK2735, which makes this a potentially volatile stock to be hanging onto. And that's why for risk-averse investors, it may be worth staying on the sidelines when it comes to Viking.

It may be a good buy if you're comfortable with the risk

Viking is an intriguing stock which possesses a lot of potential upside. I wouldn't suggest that it's safe enough to put a significant amount of money into the stock. But if you're comfortable with the risk, then perhaps a small allocation to your portfolio may be a good idea. That could strike a good balance by allowing you to benefit from its possible rise in value in the future while at the same time not leaving too much money exposed to what's still a fairly risky investment.

This isn't going to be a suitable option for retirees who want to minimize risk, but if you're a growth investor looking for exposure to a promising healthcare stock, Viking might be worth taking a chance on, especially given its reduced stock price.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.