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Just two weeks ago, when StemCells, Inc. (STEM) announced results from its first patient cohort spinal cord injury trial, the stock jumped 26% to $2.16. Since then the stock price has dropped significantly to a range prior to its announcement. This recent drop is an ideal window for an investor to get into the stock. Further, shares reacted in a similar way earlier in the year which may shed led on where they are headed.

The Surprising Results

The company said two of three patients with the worst kind of spinal cord injuries continued to show "considerable gains" in feelings a year after receiving an experimental stem cell treatment. The two patients who were able to detect touch, heat and electrical stimuli following treatment are part of the first three-patient cohort in a Phase I/II trial of StemCells' purified human neural stem cells, which are extracted from adult brain tissue, according to the company's website. The third patient in the study remains stable, the company said at the Biotechnology Industry Organization's CEO & Investor Conference in New York.

CEO Martin McGlynn excited investors with his statement :

"While we need to be cautious when interpreting data from a small, uncontrolled trial, to our knowledge, this is the first time a patient with a complete spinal cord injury has been converted to a patient with an incomplete injury following transplantation of neural stem cells."

So why have shares dropped since the announcement, while nothing has happened to cause such a reversal? To find the answer we will look at a similar events that have occurred earlier to Stem Cell's share prices.

StemCell's Previous Stock Jump

1. On September 3rd 2012, when the company reported early data from spinal cord injury trial promising, shares climbed from $1.60 to $2.20. But remarkably only one week later when excitement died down, shares fell to $1.85 losing the significant gain engendered by the positive report. It was only then four weeks later that the stock hit its 52-week high of $2.67.

2. In July, StemCells Inc. announced preclinical data demonstrating that its human neural stem cells restored memory and enhanced synaptic function in two animal models relevant to Alzheimer's disease. Shares doubled jumping from $0.90 to $1.80. The following week shares fell down to $1.40. Then five days after the drop, shares jumped above $2.00.

Fundamentals

The company currently maintains a Price/Book of 6.45x compared to the industry average of 98.04. Further, the company has had a 17.4% growth in earnings per share year over year with an expected 72% growth for fiscal year 2013.

Analysts have also found shares to be undervalued, with Ascendiant Capital Markets initiating a strong buy back in October with a price target of $3.30 and the Maxim Group expressing similar feelings of the company two months prior.

Conclusion

StemCell's recent share price drop is unjustified and should be corrected within the next couple of trading days or weeks. Further, using the past similar events such as the one in September and the one in July as test cases shares, we should see an uptrend coming soon. In both past instances, shares initially dropped significantly a few days after hitting a high but then returned with a vengeance, jumping significantly higher than the previous jump.

StemCell's has an extremely valuable pipeline and continues to impress investors. Further, the stocks fundamentals and analysts' opinions are positive indicators for the stock's future price. Therefore, investors should take advantage of this drop and get into the stock now before its expected correction. I currently maintain a strong buy on the stock with a price target of $2.50.

Source: StemCells' Recent Share Price Drop