Down 10% in a day! Why this ASX stock could now deliver market-beating returns

On Thursday, Neuren Pharmaceuticals Ltd (ASX: NEU) shares were sold off and finished the day 10% lower.

While this is disappointing for shareholders, the team at Bell Potter thinks that it has created an attractive entry point for investors.

What is the broker saying?

Although the market responded negatively to the ASX pharma stock's trading update, Bell Potter was pleased with what it reported. It said:

NEU's partner Acadia Pharmaceutical's reported another solid quarter of Daybue commercialisation in the US, reporting US$101m sales (up +11% on pcp and 5% sequential growth), 1% below BPe and VA consensus at US$102m. Sales growth was solely due to volume increases (no net price change). CY25 Daybue sales guidance was narrowed toward the midpoint of the range at US$385-400m from US$380-405m previously.

NEU has now received ~A$45m in royalty income across the first 9 months of CY25 and this will increase to ~A$64m for the full year based on our Daybue sales forecast of US$390m. Real-world persistency rates remain unchanged at >50% after 12 months and >45% after 18 months.

In light of this, Bell Potter believes that Neuren Pharmaceuticals is positioned to deliver another solid result in FY 2025. It adds:

There are negligible changes to our forecasts considering the 3Q25 result was broadly in line with expectations. We continue to expect NEU will report another profitable CY25 result, driven by ~$76m in royalty and interest income more than offsetting R&D spend on the company's second asset, NNZ-2591.

ASX stock tipped to rise strongly

According to the note, Bell Potter has responded to the update by retaining its buy rating and $25.00 price target on the ASX stock.

Based on its current share price of $18.12, this suggests that upside of 38% is possible for investors between now and this time next year.

Commenting on its bullish view of the stock, Bell Potter said:

Our valuation is derived from a risk-adjusted DCF of Daybue and clinical-stage asset NNZ-2591. We maintain our BUY recommendation and $25.00 PT. The breakdown of our $25.00 PT is evenly split between value ascribed to (1) Daybue licensing income + current cash balance of ~$300m, and (2) clinical-stage asset NNZ-2591. NNZ-2591 is expected to start dosing its first Phase 3 trial imminently, followed by the topline readout in ~18-24 months.

We view today's share price response more likely reflective of the timeframe to NEU's next Phase 3 readout catalyst, rather than a disappointing quarterly result per se; nevertheless, the European CHMP decision remains a significant catalyst event and is just ~2-3 months away.

The post Down 10% in a day! Why this ASX stock could now deliver market-beating returns appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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