With shares treading water, should you buy Inovio Pharmaceuticals (NASDAQ:INO) stock? The biotech firm, which is working on a vaccine for COVID-19, is your classic “lottery ticket” play. Either the company succeeds with a vaccine and shoots to the moon, or nothing pans out and shares head back to prior levels.
The question is, should investors waste time with this stock? Or is there a rational reason to take a chance on this COVID-19 play?
In short, there are too many unknowns to make this a good investment. Sure, you could see big upside if Inovio manages to find a COVID-19 vaccine. But, given this catalyst is largely priced into shares, upside may be limited at the current price level (around $7 per share).
Let’s dive in, and see why it’s best to avoid INO stock.
INO Stock and COVID-19
What’s next for the coronavirus from China? With the U.S. eclipsing China in the number of cases, all bets are off as to whether the outbreak has peaked in America. Or if the outbreak and its associated shutdowns will continue to impact the American economy in the months ahead.
How does INO stock relate to all of this? As I discussed on Feb. 28, the company partnered with Beijing Advaccine to develop its INO-4800 vaccine. At the time, I argued the company was light years away from bringing a potential vaccine to market. But in the weeks since, the company has made some progress.
As InvestorPlace’s Mark Hake discussed March 24, Inovio has begun Phase 1 trials in both China and the United States. But if you know biotech stocks, you know that clinical trials can last for years. By the time INO-4800 gets approved for sale, COVID-19 could be a distant memory.
Another factor to consider: the company is one of many trying to create a COVID-19 vaccine. Big pharma names like Gilead Sciences (NASDAQ:GILD) have thrown their hat in the ring. So has iBio (NYSEMKT:IBIO). Like Inovio, iBio has a track record of touting potential game-changing vaccines, with little to no results.
With this in mind, it’s easy to be cynical. Does Inovio intend to find a vaccine for COVID-19? Or is this just a new opportunity to raise capital and put points in the stock? I’m going with the latter.
Yet in the case of INO stock, there could be other factors at play. While the prospective COVID-19 vaccine is their primary catalyst, other treatments in development could yield returns in the future.
Other Catalysts in Play for Inovio
As this Seeking Alpha contributor recently discussed, the real value in INO stock may not be in its COVID-19 vaccine. It could be the company’s prospective HPV therapy and vaccine treatments that move the needle long-term. The company also has brain, head/neck, and prostate treatments in its pipeline.
But these prospective treatments are no slam dunks. And how does this all play into Inovio stock’s valuation? With shares inflated by the COVID-19 catalyst, the stock remains at a frothy valuation. Shares trade at an enterprise value/sales (EV/Sales) ratio of 256.43. By comparison, iBio trades at a EV/Sales ratio of 68.9.
So the other treatments in their pipeline may have upside potential. But overshadowed by COVID-19 speculation, shares remain richly priced. With this in mind, this doesn’t look like a compelling opportunity. Yet I wouldn’t bet against INO stock.
Like with other COVID-19 plays, you just don’t know what tomorrow will bring. Inovio could wind up making progress with a vaccine. Even if the treatment is years away from commercialization, shares would still skyrocket. In other words, this isn’t the kind of stock you want to go short. The risk of a squeeze is just too high.
Look For Solid Opportunities, Not Speculative “Lottery Tickets”
It’s fun to try and find what some call a “lottery ticket stock.” The dream of buying something like Inovio, then see its shares shoot up 10-fold (or higher) is tempting, no matter how unrealistic of a scenario. Yet, the game of investing sometimes doesn’t favor the bold. In other words, don’t speculate on the unpredictable.
Biotech investing is tough. If you have a background in this space, sure, knock yourself out. But if you are an investor looking for solid opportunities, look elsewhere and avoid INO stock. As the overall market recovers, there are plenty of other screaming buys to consider.
Thomas Niel, contributor to InvestorPlace, has written 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.