We recently published a list of 10 Hot Biotech Stocks Under $5. In this article, we are going to take a look at where Compass Therapeutics, Inc. (NASDAQ:CMPX) stands against other hot biotech stocks under $5.

The biotechnology sector is gaining new momentum with better market conditions, cutting-edge innovations, and growing investor attention. After a tough 2024, the industry is ready for major growth powered by developments in personalized medicine, AI-driven drug discovery, and rising demand for biologics. MarketsandMarkets reported that the global biotech market should grow from $483.0 billion in 2024 to $546.0 billion in 2025, reflecting a solid 13% increase. This growth shows the sector’s resilience and future potential.

A major factor in this upturn is the expected change in the Federal Reserve’s interest rate policies. Biotech needs lots of capital for expensive R&D and clinical tests, making it sensitive to shifting rate trends. Genetic Engineering and Biotechnology News noted that lower rates increase capital availability, helping biotech companies extend operations, attract venture funds, and speed up drug development. Analysts think a rate cut could free up billions in sidelined investment money for struggling new biotech companies seeking stable funding.

Biotech stocks are gaining traction among investors. Despite short-term ups and downs, biotech remains a high-growth area with good opportunities for risk-takers. Top investment banks have noticed biotech’s recovery. Goldman Sachs called it an “undervalued opportunity,” pointing to strong fundamentals, better clinical results, and a favorable regulatory setting. Goldman Sachs stressed that biotech stocks offer an “option-like structure” with strong upside potential, especially as interest rates fall. Simultaneously, JPMorgan analysts expect biotech funding to recover, noting signs of stability in research and manufacturing areas that suffered in previous funding droughts. Though biotech IPOs have been quiet since 2021, industry experts believe that falling interest rates and favorable conditions for investments could reopen the IPO window for companies seeking institutional backing.

Meanwhile, scientific breakthroughs are also driving biotech growth as gene editing, AI-powered drug discovery, and precision medicine are changing how we treat cancer, autoimmune disorders, and rare genetic conditions. With advances in CRISPR gene editing and cell therapies, biotech companies are addressing medical needs in ways unimaginable just ten years ago.

Our Methodology

To identify the 10 Hot Biotech Stocks Under $5, we screened for companies in the biotechnology sector trading below $5 per share while meeting key financial and growth criteria. We focused on stocks with a strong market capitalization, ensuring they had a solid financial foundation. Additionally, we selected companies that have gained at least 20% in the past six months, reflecting recent positive momentum, and exhibit a potential upside of at least 20%, indicating strong future growth prospects. After filtering stocks based on these parameters, we ranked them in ascending order of their potential upside to determine our final list.

To further validate our selections, we analyzed hedge fund sentiment using data from Insider Monkey’s Q4 2024 hedge fund database. Stocks with higher hedge fund ownership are often backed by institutional investors with deep research capabilities, adding an additional layer of confidence to their growth potential.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Compass Therapeutics, Inc. (NASDAQ:CMPX)

Potential Upside: 397.20%

Number of Hedge Fund Holders: 14

Compass Therapeutics, Inc. (NASDAQ:CMPX) produces antibody-based therapies for various cancers. This company’s main candidates include tovecimig (CTX-009), a bispecific antibody targeting DLL4 and VEGF-A; CTX-471, a CD137 agonist; and CTX-10726, a PD-1 x VEGF-A bispecific antibody.

Financially, Compass Therapeutics, Inc. (NASDAQ:CMPX) ended 2024 with $127 million in cash, securing operations into 2027. General and administrative (G&A) expenses grew to $15.1 million from $12.2 million, while research and development (R&D) expenses rose to $42.3 million from $38.1 million. Despite spending $45 million on operations, Compass maintained financial stability by raising $18 million through its ATM program.

On the clinical side, Compass Therapeutics, Inc. (NASDAQ:CMPX) is advancing several promising programs. The Phase 2/3 COMPANION-002 trial for tovecimig in advanced biliary tract cancer is fully enrolled, with results expected by the end of Q1 2025. An investigator-sponsored study (IST) at MD Anderson will soon begin administering tovecimig in first-line BTC. Additionally, the company plans to start a Phase 2 trial for DLL4-positive colorectal cancer in mid-2025.

Beyond tovecimig, Compass is developing CTX-10726, a PD-1 x VEGF-A bispecific antibody, with an IND filing planned for late 2025. The company is also advancing CTX-471 into Phase 2 trials for NCAM/CD56-expressing tumors. Compass Therapeutics, Inc. (NASDAQ:CMPX) is also progressing CTX-8371, a PD-1 x PD-L1 bispecific checkpoint inhibitor, with early trial data expected in late 2025.

With solid finances and upcoming clinical milestones, Compass Therapeutics, Inc. (NASDAQ:CMPX) remains a hot biotech stock to watch.

Overall, CMPX ranks 3rd on our list of hot biotech stocks under $5. While we acknowledge the potential of CMPX, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CMPX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.