We came across a bullish thesis on Mereo BioPharma Group plc (MREO) on Substack by Jake LaMotta. In this article, we will summarize the bulls’ thesis on MREO. Mereo BioPharma Group plc (MREO)'s share was trading at $2 as of April 16^th.

A biopharmaceutical facility with technicians working on a manufacturing line of treatments and preventions.

Mereo BioPharma (MREO) appears to be one of the most mispriced biotech opportunities following the broader XBI sell-off, trading at $1.80 despite prior enthusiasm around $4. While undeniably speculative and high-risk, the core fundamentals remain largely unchanged. The recent weakness stems from the first interim readout of setrusumab falling short—an outcome that was widely anticipated and never expected to impress, even by Mereo, its partner Ultragenyx, or sell-side analysts. However, attention is now turning to the upcoming second interim readout due within months, which carries more favorable expectations. A positive result there could quickly send shares up 3x from current levels, while a miss would likely drive further downside, though optimism around the final readout remains intact. Meanwhile, prospects for a deal on alvelestat remain uncertain, given the tough macro environment, but commentary from Mereo’s CEO at the March Leerink fireside chat suggested stronger conviction than ever before. Despite the binary nature of its upcoming catalysts, Mereo offers a uniquely asymmetric risk/reward setup. The current valuation reflects little of the company’s upside potential, making it a compelling opportunity for investors willing to stomach volatility in exchange for a possible outsized return.

Mereo BioPharma Group plc (MREO) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 30 hedge fund portfolios held MREO at the end of the fourth quarter which was 25 in the previous quarter. While we acknowledge the risk and potential of MREO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MREO 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 was originally published at Insider Monkey.