Is iBio (NYSEMKT:IBIO) on the cusp of a game changer? Or is this biotech name all talk? That’s the question speculators are asking as IBIO stock soars to new highs. While the company could potentially bring a vaccine to market for the coronavirus from China, buying shares at today’s prices may not be a winning proposition.
There are many reasons why. This isn’t iBio’s first time capitalizing on a pandemic. As InvestorPlace’s Vince Martin discussed March 16, the company pulled a similar move during the 2014 Ebola outbreak. Similar to today, speculators rushed in, bidding up shares, as the company announced plans to help develop an Ebola vaccine.
Once that outbreak faded (without the company developing a vaccine), shares fell back to prior levels. So, what makes this time different? That’s up for debate. Using past as prelude, it seems safe to say iBio isn’t going to solve this crisis. Yet, with their recently-announced progress, perhaps an actual vaccine is just around the corner.
With speculation driving its share price, it’s tough to value IBIO stock. Too little information to make it a buy. Too much unpredictability to short. Let’s dive in and see why your best play is to stay on the sidelines.
What Are The Odds For IBIO Stock?
Determining whether a biotech stock is a buy or a sell is more art than science. Think of it like handicapping. Instead of saying “well, this stock is cheap relative to peers,” or “growth is not priced into this stock,” you are figuring out the odds whether a company’s prospective treatment goes to market.
In some investments you’ll lose most of your capital. But in others, you’ll see returns well above 100%. Your “winners” outpace your “losers.” Yet, for most investors lacking a biotech background, this is easier said than done. Especially in the case of IBIO stock.
As InvestorPlace’s Dana Blankenhorn explained on March 16, iBio isn’t a standard biotech play. Instead of pursuing research and development (R&D), iBio is partnering with another biotech firm (Chinese-based Beijing CC-Pharming). Basically, iBio has agreed to put into production Beijing CC-Pharming’s vaccine, if and when they can bring one to market.
The question is, will this deal result in a tangible vaccine? On March 18, the company issued a press release touting “development of proprietary COVID-19 vaccine candidates.” In other words, they may now have the ability to pursue clinical trials.
What does this mean for IBIO stock? The company could have a possible vaccine in its hands. But will this mean quick approval around the world? It depends. Approval from the FDA (Food and Drug Administration) is not an overnight process. Yet, other countries may be more willing to fast-track commercialization.
Everything around iBio is pure speculation. And at the current valuation, you are making a big bet that recent developments are the start of something big.
Shares Overvalued, But Don’t Bet Against Them
Considering the company’s current market capitalization (around $123 million) against its existing assets, shares are overvalued. Yet, that doesn’t mean this stock can’t go higher. The outbreak may be fading over in China, but things are only getting started in the United States.
In other words, it may be months before we start recovering from this crisis. In the meantime, speculators will remain on the hunt for ways to play this trend.
As a result, IBIO stock could soar to new highs, if the company makes more progress. Shares could head back to their prior 52-week high ($3.40 per share). They could also climb higher. That’s what makes the company a risky short candidate. With so many unknowns, the chances of a short squeeze are very high.
But don’t this take this as a reason to buy iBio shares. You could buy today at around $1.60 per share and see a quick 100% pop. Yet, you can’t predict the unpredictable. You can speculate, but you really can’t invest in this stock.
Stay on the Sidelines, and Look For Less Uncertain Opportunities
As I said above, iBio is too speculative to buy, but too risky to short. If you buy shares, you are making a long-shot bet that this one company is going to solve the crisis. If you take the other side, you could wind up in a massive short-squeeze if the company makes more progress.
The recent market meltdown has wrecked havoc on portfolios. But it’s also given investors the opportunity to buy high quality stocks selling at low valuations.
Don’t waste time and risk capital on IBIO stock and other coronavirus plays. Instead, pursue less-risky, but high-upside potential buys available in today’s current environment.
Thomas Niel, contributor to InvestorPlace, has been writing single-stock analysis for web-based publications since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
