Cassava Sciences (NASDAQ:SAVA), the Alzheimer’s disease (AD) drug company, certainly has had a rough time. In fact, one author recently called SAVA stock a “volatile, battleground stock.” This is because the company has endured a number of short attacks recently. Most of these came out after their recent September release of 9-month Phase 2 results.

SAVA stock closed 2020 at $6.82 per share on Dec. 31. Since then it has skyrocketed several times above $100 per share and even peaked at $135.30 on July 28. As of Sept. 17, it was at $46.50, or still up 782% year-to-date. However, since the end of Q2 when SAVA closed at $85.44, the stock is still down 45.6%.

Nevertheless, there are reasons to be positive about the stock’s upside. For one, Cassava Sciences is highly likely to proceed to its planned Phase 3 study of Simufilam, its Alzheimer’s disease drug. The company’s latest slide deck presentation shows that it is now ready to proceed to a Phase 3 study of the drug’s efficacy against Alzheimer’s.

Upcoming Events That Should Help

Page 6 of the slide deck shows that Cassava Sciences has four upcoming events that can act as trigger points for SAVA stock. For example, the company plans on releasing the 12-month results of the first 50 patients to complete 12 months of using Simufilam.

Originally the company was going to release these Phase 2 results in September. But I suspect that the company is reviewing its presentation of those results in order to stand up to further scrutiny.

In addition, the company reports that its Phase 3 clinical trials protocols have been approved by the FDA. As Cassava Sciences had over $278 million on its balance sheet as of June 30, I don’t foresee any issues in terms of launching the first several of these Phase trials. The purpose of the studies are to test its efficacy in AD patients.

The company is also planning on conducting a placebo-controlled Cognition Maintenance Study (CMS) in Alzheimer’s patients.

Every one of these study results could end up spiking or pushing lower SAVA stock. However, I believe that on balance, given good results, especially cognition results, the probabilities provide potential upside for SAVA stock.

Seeing a Binary Trade with SAVA Stock

Analysts are still positive on SAVA stock, although some have lowered their price targets. For example, recently a B. Riley analyst lowered their price target to $108 from $145 due to the stock’s “elevated risks.” The analyst kept their Buy rating on the stock. They saw little reason that the FDA would pull the company’s applications to begin Phase 3 clinical trials, as some shorts have tried to get done.

As of today, TipRanks.com indicates that the average price target of five analysts covering the stock is $147.40. This ranges from a low of $100 to a high of $215.00 per share. Moreover, Seeking Alpha indicates that the average price of its survey of three analysts covering SAVA stock is $140.67. Yahoo! Finance, which uses Refinitiv survey data, reports that four analysts have an average $159.25 price target. The average of all three surveys is $149.11. We can use this to calculate its expected return.

These high price targets vs. the shorts’ claims that the stock is worthless almost make this a binary play. If there is fraud in the results presentations, one wonders, why would the company be pressing to start Phase 3 trials? In addition, why hasn’t management taken down the huge potential payments they could have when the stock was higher? These points lead one to believe that there is still likely some upside in the stock, assuming that the remaining Phase 2 and upcoming Phase 3 results are positive.

Using Probability Analysis for SAVA Stock

One method I have used with binary situations like this in the past is to derive a probability-weighted price target. For example, let’s assume that there is a 50% chance that analysts are right and the stock will hit $149.11 sometime in the next 12 months. Let’s also assume that there is a 50% chance that the company is worthless, except for its cash per share, or about $6.95 per share ($278m/40m shares). What is the expected return (ER)?

First, if we multiply 0.50 times $149.11, the analyst weighted price component of the total value is $74.57. Now assuming the shorts are right, their weighted component value is $3.48 per share. Now adding the two weighted average components results in a probability-weighted price of $78.05 (i.e., $74.57 + 3.48).

Of course, this gives no value to the ongoing research and even to the value of SavaDx, the company’s blood-based diagnostic test. The implied ER or upside for SAVA stock is 67.85%. That is a decent expected return for most investors. Just keep in mind that this stock will be highly volatile.

On the date of publication, Mark R. Hake held a long position in SAVA but not in any other security (directly or indirectly) mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.