Not all stocks have been killed by the coronavirus from China. One stock which has fared quite well during this turbulent era is Inovio Pharmaceuticals (NASDAQ:INO) stock. The small-capitalization, clinical-stage pharmaceutical company has seen its share price skyrocket from $3 at the start of the year to $20 in March, on hopes that it can develop a vaccine for Covid-19.
Some investors are chasing INO stock as a coronavirus play to help boost their portfolios while pretty much every other stock in the market — save the stocks of other potential vaccine makers and face-mask producers — is falling off a cliff.
But, I wouldn’t do that.
Instead, I’d tread carefully when it comes to this rally in Inovio stock. Recent gains don’t look sustainable, and a drop back to $3 looks entirely possible.
Here’s why.
Long History, Not Much to Show
When it comes to Inovio, you have a company with a long, rich history of making impressive progress on DNA vaccines for various high-risk infections and diseases. Yet, after four decades, the company doesn’t have much to show for it.
The company has never brought a product to market. Revenues, which were just $867,000 last quarter, are all from collaboration agreements. Net losses last quarter measured over $23 million.
Sure, there’s a bunch of promising products in the pipeline. But, there have always been a ton of promising products in the pipeline. The problem is that these products tend to remain in the pipeline. None make it out and actually produce revenue for the company.
That’s why INO stock had dropped from $15 to $3 in the several years leading up to the coronavirus outbreak.
Does the coronavirus outbreak materially change the fundamentals that plunged this stock into penny stock territory? Not really. Inovio has attempted to make DNA medicines for other infectious diseases, like MERS and Ebola. Such medicines have made good progress. But, it’s been several years, and those medicines still aren’t revenue-generating products.
The company’s DNA vaccine for Covid-19, dubbed INO-4800, will likely follow a similar trajectory. Ultimately, that’s not great news for Inovio stock, because the recent share price surge bakes in big revenue from a Covid-19 vaccine, and soon.
Coronavirus Crisis Will Fade
In the long run, coronavirus fears will fade. As they do, Inovio stock will likely give back its huge year-to-date gains.
Here’s the situation. The coronavirus is a big, scary and volatile thing. But, data and history show that it’s really nothing to worry about at scale, and that proper quarantining measures will put the outbreak to bed by April or May. That is, experts peg the mortality rate of the disease at somewhere around 0.5% — which isn’t much higher than the flu at 0.1% — and numbers indicate its near zero for anyone not in the 65-plus crowd and/or with a preexisting medical condition.
New cases in China and South Korea are nearing zero, while active cases are dropping. In other words, where the outbreak hit first, it’s now essentially over, about 2 months after it emerged.
Thus, data suggests that the coronavirus outbreak won’t get that big in the U.S. and will pass by April or May.
That’s bad news for Inovio stock. Shares have been surging on coronavirus fears. Once those fears abate, so will a lot of the buying pressure underlying the stock. Indeed, some of that buying pressure will turn into selling pressure as investors realize that a potential Covid-19 vaccine won’t be that valuable after all.
If so, INO stock could drop back to pre-coronavirus levels.
Bottom Line on INO Stock
Inovio is one of the market’s favorite coronavirus stocks to buy. I understand why. But, I also understand that coronavirus hysteria on both Wall Street and Main Street is temporary. It will pass.
When it does, INO stock could turn into a “look out below” situation.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
