A host of companies have entered into the fray as the competition heats up to develop a vaccine for the coronavirus from China. Among these companies is Inovio (NASDAQ:INO), whose stock has made some furious price moves lately.
There’s also a recent financial grant to consider, which could prove to be a catalyst for INO stock. Still, this trade isn’t for the faint of heart.
A grant doesn’t guarantee a successful coronavirus vaccine. Nor is it likely to contain the share price’s highly volatile action.
Inovio Gets a Downgrade
By the end of last week, Inovio shares had gained a whopping 180% year-to-date. You might have witnessed some huge price jumps among stocks announcing developments toward coronavirus vaccines. Perhaps you’ve seen some of them move 50% or even 100%. But 180% is rather extreme and might be hard to sustain. After all, no company has come up with an effective, government-approved coronavirus vaccine yet.
In light of this, one analyst has expressed caution. Analyst Gregory Renzahe seems to suggest the possibility that developing a successful coronavirus vaccine has already been baked into the Inovio stock price:
“In our view COVID-19 vaccine attention has helped to reach levels that reflect fair value … [T]he unpredictability of monetizing a vaccine as well as the inherent work that INO faces in getting a vaccine over the goal line (irrespective of fast tracking) still persists — with the program development, proving out the viability and profile of INO-4800 clinically, being able to deploy vaccine and device in a scalable way — and all together remain a tall order.”
In other words, Inovio would have to make a whole lot of progress in order to justify the 180% price jump. Saying that the current price reflects a “fair value” seems like a polite way of stating that Inovio shares have no current reason to go up much more.
There’s certainly merit to this argument. It’s a long and arduous process to get a vaccine approved. Besides, Inovio isn’t the only company testing a coronavirus vaccine. The competition in this area is plentiful.
Support From a Market Celebrity
In any case, RBC downgraded the stock from outperform to sector perform. This is in spite of Inovio receiving a $5 million grant from the Gates Foundation. The reported purpose of the grant is to help Inovio develop a smart device that could inject the company’s coronavirus vaccine.
Thus, it could be said that Inovio has a celebrity endorsement from Bill and/or Melinda Gates. The company has also received $9 million in funding from a Norwegian organization known as the Coalition for Epidemic Preparedness Innovations.
Sure, $14 million in funding is nothing to sneeze at, but keep in mind that funding doesn’t ensure success. Inovio is a tiny biotech company, and none of its products are currently approved.
Besides, Inovio’s fourth-quarter financial results aren’t encouraging. During that quarter, the company posted a $37.7 million net loss. That’s equivalent to a loss of 38 cents per share. That’s even worse than the net loss of $33 million, or 34 cents per share, from the same quarter a year earlier.
Moreover, fourth-quarter revenue was a paltry $279,000. That’s a steep decline compared to the $2.5 million in revenue generated during the same quarter from a year ago.
The Takeaway on INO Stock
It’s a gutsy move for RBC to downgrade INO stock. Yet, it makes perfect sense. The share price is too volatile for most investors to handle. And a cash infusion is absolutely no guarantee of successfully getting a coronavirus vaccine approved.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.